EXHIBIT 10.1
IFS INTERNATIONAL, INC.
UNDERWRITING AGREEMENT
New York, New York
February 21, 1997
Duke & Co., Inc.
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
The undersigned, IFS International, Inc., a Delaware
corporation (the "Company"), hereby confirms its agreement with Duke &
Co., Inc. (the "Underwriter" or "You"), as follows:
1. INTRODUCTION. The Company proposes to issue and sell to
the Underwriter an aggregate of 1,200,000 shares of Series A Convertible
Preferred Stock, $.001 par value (the "Preferred Stock"), of the Company
and 1,700,000 redeemable Preferred Stock purchase warrants (the
"Redeemable Warrants"), each Redeemable Warrant exercisable to purchase
one share of Preferred Stock. Each share of Preferred Stock is
convertible, at the option of the holder, into one share of common stock
of the Company, $.001 par value (the "Common Stock"), for a period
commencing on the date hereof and ending on the fifth anniversary of the
Effective Date (as hereinafter defined); provided that the Preferred
Stock is required to be converted into Common Stock by the holders on the
earlier of the fifth anniversary of the Effective Date or the occurrence
of certain events, as more particularly described in the Certificate of
Designations relating to the Preferred Stock filed as Exhibit 4.1 to the
Registration Statement (referred to in Section 2(a) below). The
conversion rate of the Preferred Stock is subject to adjustment in
certain circumstances to prevent dilution. Each Redeemable Warrant
shall be exercisable for a period of three (3) years, commencing two
years from the Effective Date (except that the Redeemable Warrants shall
become exercisable at such earlier time as notice of mandatory redemption
of the Preferred Stock is given or the Redeemable Warrants are called for
redemption (as described below)), and shall entitle the holder to
purchase one share of Preferred Stock at a price equal to $6.25 per
share, which price is subject to adjustment in certain circumstances to
prevent dilution. The Company may call for redemption of the Redeemable
Warrants commencing one year from the Effective Date at a redemption
price of $.10 per Redeemable Warrant, provided that the closing sales
price of the Preferred Stock for a period of 20 consecutive trading days,
which period ends no earlier than three business days prior to the
mailing of the notice of redemption, exceeds $8.00 per share, subject to
adjustment in certain circumstances to prevent dilution. The Redeemable
Warrants will be issued pursuant to a warrant agreement dated the date
hereof between the Company and American Stock Transfer and Trust Company
(the "Public Warrant Agreement"), a form of which has been filed as
Exhibit 4.6 to the Registration Statement. It is contemplated that the
shares of Preferred Stock and the Redeemable Warrants will trade
separately and be purchasable separately immediately upon issuance.
The 1,200,000 shares of Preferred Stock and 1,700,000
Redeemable Warrants are hereinafter referred to as the "Firm Securities."
Upon your request, as provided in Section 3 of this Agreement, the
Company shall also issue and sell to you up to an additional 180,000
shares of Preferred Stock and 255,000 Redeemable Warrants for the purpose
of covering over-allotments in the sale of the Firm Securities. Such
additional securities are hereinafter referred as the "Option
Securities." The Firm Securities and the Option Securities are
hereinafter sometimes referred to as the "Offered Securities." The
1,380,000 shares of Preferred Stock included as part of the Offered
Securities are hereinafter referred to as the "Shares"; the 1,955,000
shares of Preferred Stock issuable upon exercise of the Redeemable
Warrants included as part of the Offered Securities are hereinafter
referred to as the "Public Warrant Shares"; the 3,335,000 shares of
Common Stock issuable upon conversion of the Shares and the Public
Warrant Shares are hereinafter referred to as the "Public Conversion
Shares"; and the Offered Securities, Public Warrant Shares and Public
Conversion Shares are sometimes hereinafter referred to collectively as
the "Public Securities."
The Company also proposes to issue and sell to you, pursuant to
the terms of a warrant agreement, dated as of the First Closing Date (as
hereinafter defined), between you and the Company (the "Underwriter's
Warrant Agreement"), warrants (the "Underwriter's Warrants) to purchase
up to 120,000 shares of Preferred Stock and 170,000 Redeemable Warrants.
The Underwriter's Warrants shall be exercisable during the four-year
period commencing 12 months from the Effective Date, at $6.25 per share
of Preferred Stock and $1.6875 per Redeemable Warrant, subject to
adjustment in certain events to protect against dilution. The 120,000
shares of Preferred Stock issuable upon exercise of the Underwriter's
Warrants are hereinafter referred to as the "Underwriter's Shares"; the
170,000 Redeemable Warrants issuable upon exercise of the Underwriter's
Warrants are hereinafter referred to as the "Underwriter's Redeemable
Warrants"; the 170,000 shares of Preferred Stock issuable upon exercise
of the Underwriter's Redeemable Warrants are hereinafter referred to as
the "Underwriter's Warrant Shares"; the 290,000 shares of Common Stock
issuable upon conversion of the Underwriter's Shares and the
Underwriter's Warrant Shares are hereinafter referred to as the
"Underwriter's Conversion Shares"; and the Underwriter's Warrants, the
Underwriter's Shares, the Underwriter's Redeemable Warrants, the
Underwriter's Warrant Shares and the Underwriter's Conversion Shares are
sometimes hereinafter referred to collectively as the "Underwriter's
Securities." The Public Securities and the Underwriter's Securities are
sometimes hereinafter referred to collectively as the "Registered
Securities."
The Registered Securities are more fully described in the
Registration Statement and the Prospectus referred to below.
2. REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants to, and agrees with, the Underwriter:
(a) A registration statement on Form SB-2 (File No. 333-
11653) including a preliminary form of prospectus, relating to the
registration of the Registered Securities has been prepared by the
Company in conformity with the requirements of the Securities Act of
1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the
"Commission") promulgated pursuant to the Act, and said registration
statement has been filed with the Commission under the Act. One or more
amendments to said registration statement has or have, as the case may
be, been similarly prepared and filed with the Commission and the Company
may file on or prior to the Effective Date of said registration statement
an additional amendment thereto which will include the final prospectus.
The Company will not, so long as any Redeemable Warrants or Underwriter's
Warrants remain outstanding and exercisable, file any amendment thereto
or any amendment or supplement to the Preliminary Prospectus or the
Prospectus (as those terms are defined below) unless the Company has
given reasonable and prior notice thereof to the Underwriter and counsel
for the Underwriter and neither shall have reasonably objected within a
reasonable period of time prior to the filing thereof. As used in this
Agreement and unless the context indicates otherwise, the term
"Registration Statement" refers to and means said registration statement,
including any exhibit, financial statement and prospectus included
therein, as finally amended and revised on or prior to the Effective Date
(the "Effective Date") of said registration statement. The term
"Preliminary Prospectus" refers to and means any prospectus filed with
the Commission and included in said registration statement before it
becomes effective, and the term "Prospectus" refers to and means the
prospectus included in the Registration Statement, except that if the
prospectus first filed by the Company pursuant to Rule 424(b) of the
Rules and Regulations shall differ from the Prospectus, the term
"Prospectus" shall refer to the prospectus filed pursuant to Rule 424(b).
If the Registration Statement or the Prospectus is amended or
supplemented after the Effective Date and prior to or on the Closing
Dates (as defined in Section 3), then the terms "Registration Statement"
and "Prospectus" shall refer to such documents as so amended or
supplemented. The terms used herein shall have the same meaning as in
the Prospectus unless the context hereof otherwise requires.
(b) Neither the Commission nor any state regulatory
authority has issued an order preventing or suspending the use of the
Preliminary Prospectus nor has the Commission or any such authority
instituted or, to the knowledge of the Company, threatened to institute
any proceedings with respect to such an order; the Preliminary
Prospectus, at the time of filing with the Commission, conformed in all
material respects to the requirements of the Act and the Rules and
Regulations, contained all statements which were required to be stated
therein by the Act and the Rules and Regulations and did not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and the Registration Statement at the time when it
becomes effective, and the Prospectus (and any amendments or supplements
thereto) at all subsequent times up to the date set forth in the
Prospectus as required by Item 502(e) of Regulation S-B of the Rules and
Regulations, will contain all statements which are required to be stated
therein in accordance with the Act and the Rules and Regulations and will
conform in all material respects to the requirements of the Act and the
Rules and Regulations, and at such times neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto,
will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, except that the representations and
warranties in this Section 2(b) do not apply to statements or omissions
made in the Registration Statement or Prospectus by or on behalf of the
Underwriter made in reliance upon and in conformity with information
furnished in writing to the Company in connection with the Registration
Statement or Prospectus or any amendment or supplement thereto by the
Underwriter, expressly for use therein.
(c) Each of the Company and the U.S. Subsidiary (as
defined in paragraph d of this Section 1 below) (i) has been duly
organized and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation, (ii) is duly qualified and
in good standing as a foreign corporation in each jurisdiction in which
its ownership or leasing of any properties or the character of its
operations requires such qualification, except where the failure to so
qualify would not have a material adverse effect on its business, and
(iii) has all requisite corporate power and authority, and all material
licenses, permits, certifications, registrations, approvals, consents and
franchises, to own or lease its properties and conduct its business as
described in the Prospectus. Each of the Company and the U.S. Subsidiary
is and has been doing business in material compliance with all such
authorizations, approvals, licenses, certificates, franchises and permits
and all federal, state and local laws, rules and regulations; and,
neither the Company nor the U.S. Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially adversely affect the
business, operations, condition, financial or otherwise, or the earnings,
business affairs, position, prospects, value, operation, properties,
business or results of operations of the Company and the U.S. Subsidiary,
taken as a whole. The disclosures in the Registration Statement
concerning the effects of federal, state and local laws, rules and
regulations on the business of the Company and the U.S. Subsidiary as
currently conducted are correct in all material respects and do not omit
to state a fact necessary to make the statements contained therein not
misleading in light of the circumstances in which they were made.
(d) The Company does not own, directly or indirectly,
any capital stock or other equity interest in or of any corporation,
partnership or other legal entity whatsoever, except that the Company
owns 100% of the outstanding securities of (i) IFS International, Inc., a
New York corporation (the "U.S. Subsidiary"), and (ii) IFS International,
Inc. (S) PTE Ltd., a corporation organized under the laws of Singapore
(the "Foreign Subsidiary" and, collectively with the U.S. Subsidiary, the
"Subsidiaries").
(e) The financial statements of the Company, including
the related notes included as part of the Registration Statement, present
fairly the financial condition of the Company as of the dates thereof and
the results of operations for the respective periods to which they apply.
Such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the
periods involved, except as otherwise stated therein, and all adjustments
necessary for a fair presentation of results for such periods have been
made.
(f) ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇, P.C., who have audited
certain of the financial statements included as part of the Registration
Statement, are independent public accountants as required by the Act and
the Rules and Regulations.
(g) Subsequent to the dates as of which information is
given in the Registration Statement and Prospectus, except as disclosed
in or contemplated by the Registration Statement and Prospectus, (i) the
Company has not incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions other than in the
ordinary course of business; (ii) there has not been any change in the
capital stock, funded debt (other than regular repayments of principal
and interest on existing indebtedness) or other securities of the
Company; (iii) there has not been any material adverse change in the
condition (financial or otherwise), business, operations, income, net
worth or properties, including any loss or damage to the properties, of
the Company (whether or not such loss is insured against); and (iv) the
Company has not paid or declared any dividend or other distribution on
its Common Stock or its other securities or redeemed or repurchased any
of its Common Stock or other securities.
(h) This Agreement, the Public Warrant Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement (as defined
in Section 5(v) hereof), have been duly and validly authorized by the
Company, and this Agreement constitutes, and the Public Warrant
Agreement, the Underwriter's Warrant Agreement and the Consulting
Agreement, when executed and delivered pursuant to this Agreement
(assuming due execution by the Underwriter and/or the appropriate parties
to such agreements), will each constitute, a valid and binding agreement
of the Company, enforceable against the Company in accordance with its
respective terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
or similar laws affecting creditors' rights generally, (ii) as
enforceability of any indemnification, contribution or exculpation
provision may be limited under applicable Federal and state securities
laws, and (iii) that the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor
may be brought ((i), (ii) and (iii) are hereinafter referred to as the
"Enforceability Exceptions").
(i) The Shares have been duly authorized and, when
issued and delivered pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and non-assessable. The Redeemable Warrants
have been duly authorized and, when issued and delivered pursuant to this
Agreement, will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, subject to the
Enforceability Exceptions, and will be entitled to the benefits provided
by the Public Warrant Agreement. The Public Warrant Shares have been
reserved for issuance upon exercise of the Redeemable Warrants and, when
issued in accordance with the terms of the Redeemable Warrants and Public
Warrant Agreement, will be duly authorized, validly issued, fully paid
and non-assessable. The Public Conversion Shares have been reserved for
issuance upon conversion of the Preferred Stock and, when issued in
accordance with the terms of the Certificate of Designation relating to
the Preferred Stock (hereinafter, the "Certificate of Designation"), will
be duly authorized, validly issued, fully paid and non-assessable. The
Underwriter's Warrants have been duly authorized and, when issued and
delivered pursuant to this Agreement and the Underwriter's Warrant
Agreement, will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, subject to the
Enforceability Exceptions, and will be entitled to the benefits provided
by the Underwriter's Warrant Agreement. The Underwriter's Shares have
been reserved for issuance upon exercise of the Underwriter's Warrants
and, when issued in accordance with the terms of the Underwriter's
Warrants and Underwriter's Warrant Agreement, will be duly authorized,
validly issued, fully paid and non-assessable. The Underwriter's
Redeemable Warrants, when issued in accordance with the terms of the
Underwriter's Warrants and Underwriter's Warrant Agreement, will be duly
authorized and will constitute valid and legally binding obligations of
the Company enforceable in accordance with their terms, subject to the
Enforceability Exceptions, and will be entitled to the benefits provided
by the Public Warrant Agreement. The Underwriter's Warrant Shares have
been reserved for issuance upon exercise of the Underwriter's Redeemable
Warrants and, when issued in accordance with the terms of the
Underwriter's Redeemable Warrants and the Public Warrant Agreement, will
be duly authorized, validly issued, fully paid and non-assessable. The
Underwriter's Conversion Shares have been reserved for issuance upon
conversion of the Preferred Stock issuable upon exercise of the
Underwriter's Warrants and Underwriter's Redeemable Warrants and, when
issued in accordance with the terms of the Certificate of Designation,
will be duly authorized, validly issued, fully paid and non-assessable.
Neither the issuance of any of the Public Securities nor any of the
Underwriter's Securities will violate or otherwise be subject to the
preemptive rights of any holders of any security of the Company or
similar contractual rights granted by the Company, and none of the
holders of any of the Public Securities or any of the Underwriter's
Securities will be subject to personal liability by reason of being such
holders.
(j) All issued and outstanding capital stock of the
Company has been duly authorized and validly issued and is fully paid and
non-assessable; the issuances and sales of all such capital stock
complied in all material respects with applicable Federal and state
securities laws; the holders thereof have no rights of rescission with
respect thereto, and are not subject to personal liability by reason of
being such holders; and none of such securities were issued in violation
of the preemptive rights of any holders of any security of the Company or
similar contractual rights granted by the Company.
(k) Except as set forth in the Prospectus, no material
default exists in the due performance and observance of any term,
covenant or condition of any license, contract, indenture, mortgage, deed
of trust, note, loan or credit agreement, or any other agreement or
instrument to which the Company is a party or by which the Company may be
bound or to which any of the property or assets of the Company are
subject, which default would reasonably be expected to have a materially
adverse effect on the financial condition or business of the Company.
(l) The Company is not in violation of any term or
provision of its Certificate of Incorporation or By-Laws. Neither the
execution and delivery of this Agreement, nor the issuance and/or sale of
any of the Public Securities or the Underwriter's Securities, nor the
consummation of any of the transactions contemplated herein, nor the
compliance by the Company with the terms and provisions hereof, has
materially conflicted with or will materially conflict with, or has
resulted in or will result in a material breach of, any of the terms and
provisions, or has constituted or will constitute a material default
under, or has resulted in or will result in the creation or imposition of
any material lien, charge or encumbrance upon the property or assets of
the Company pursuant to the terms of, any indenture, mortgage, deed of
trust, 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 any of the property or assets of
the Company is subject, except where such conflict, breach, default,
lien, charge or an encumbrance would not have a material adverse effect
on the Company; nor will such actions result in any material violation of
the provisions of the Certificate of Incorporation or the By-Laws of the
Company or of any contract or agreement, or of any statute or any order,
rule or regulation applicable to the Company or any of the Subsidiaries
or of any other regulatory authority or other governmental body having
jurisdiction over the Company or any of the Subsidiaries, except where
such violation would not have a material adverse effect on the Company.
(m) Except as set forth in the Prospectus, there is
neither pending nor, to the knowledge of the Company, threatened, any
action, suit, or proceeding at law or in equity or any arbitration (or
circumstances that may give rise to the same) to which the Company or any
of its respective officers, directors or greater than 5% shareholders is
a party before or by any court, arbitration tribunal or governmental
instrumentality, agency, or body, which might result in any materially
adverse change in the condition (financial or otherwise), business,
operations, income, net worth or properties of the Company, or which
might materially adversely affect its properties or assets, or prevent
consummation of the transactions contemplated hereby; nor are there any
such actions, suits or proceedings against the Company related to
consumer protection, distribution, rental and sales, or environmental
matters or matters related to discrimination on the basis of age, sex,
religion or race; and no labor disturbance by the employees of the
Company exists or to the knowledge of the Company is imminent which might
be expected to materially adversely affect the conduct of the business,
property, operations, financial condition or earnings of the Company.
(n) There is no contract or other document which is
required by the Act or by the Rules and Regulations to be filed as an
exhibit to the Registration Statement which has not been so filed, and
each contract which is filed as an exhibit to the Registration Statement
is and shall be in full force and effect at each of the Closing Dates or
shall have been terminated in accordance with its terms or as set forth
in the Registration Statement and Prospectus, and no party to any such
contract has given notice to the Company of the cancellation of or, to
the knowledge of the Company, shall have threatened to cancel, any such
contract, and, except as set forth in the Prospectus, the Company is not
or shall not be in default thereunder.
(o) The Company has good and marketable title to all of
its property and assets, including any licenses, trademarks and
copyrights, described in the Registration Statement as owned by it, free
and clear of all liens, charges, encumbrances and restrictions other than
such as are not materially significant in relation to the business of the
Company and other than as described in the Registration Statement
(including the financial statements and notes included therein); all of
the leases, subleases and licenses under which it holds or uses any real
or personal property, including those described or referred to in the
Prospectus, are in full force and effect, and the Company is not in
material default in respect of any of the terms or provisions of any such
leases, subleases and licenses, and, to the Company's knowledge, no claim
of any sort has been asserted by anyone adverse to the rights of the
Company under any such leases, subleases or licenses affecting or
questioning the rights of the Company to the continued use or enjoyment
of the rights and property covered thereby. The Company owns or leases
all such properties as are necessary to its operations as now conducted
as set forth in the Prospectus.
(p) The Company has timely (giving effect to permitted
extensions) and properly prepared and filed all necessary Federal, state,
local and foreign income and franchise tax returns and has paid all taxes
shown on such returns and all assessments received by it to the extent
the same have become due, other than those due without interest or
penalty, and except to the extent the Company is in good faith contesting
any such tax or assessment in appropriate proceedings and has established
reserves in accordance with normal accounting practices. The Company has
no knowledge of any tax deficiency which might be asserted against the
Company which could materially and adversely affect its business or
properties, and has established adequate reserves for such taxes which
are not yet due and payable.
(q) The Company maintains insurance, which is in full
force and effect, of the types and in the amounts currently adequate for
its business, including but not limited to personal injury insurance,
insurance covering all personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, except that the Company does not carry
product liability insurance and insurance for theft or destruction of its
merchandise while in the possession of its customers. The Company has
not (i) failed to give notice or present any insurance claim with respect
to any matter, including but not limited to the Company's business,
property or employees, under the insurance policy or surety bond in a due
and timely manner, (ii) had any disputes or claims against any
underwriter of such insurance policies or surety bonds or has failed to
pay any premiums due and payable thereunder, or (iii) failed to comply
with all conditions contained in such insurance policies and surety
bonds; in each case except where such failure or dispute would not have a
material adverse effect on the business, operations or financial
condition of the Company taken as a whole. To the best knowledge of the
Company, 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.
(r) The Company owns or possesses adequate rights to use
all patents, patent rights, inventions, trademarks, service marks, trade
names and copyrights necessary for the conduct of its business as
described in the Prospectus and the Company has not received any notice
of infringement of or conflict with, and the Company, to the best of its
knowledge, is not infringing or in conflict with asserted rights of
others with respect to, any patents, patent rights, inventions,
trademarks, service marks, trade names or copyrights.
(s) Except as set forth in the Prospectus, the Company
is not obligated or under any liability whatsoever to make any payment by
way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service ▇▇▇▇, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use
thereof or in connection with the conduct of its business or otherwise.
In addition, the Company owns and has the unrestricted right to use all
trade secrets, know-how (including all other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), inventions, designs, processes, works of authorship,
computer programs and technical data and information (collectively herein
"intellectual property") 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; provided, however, that
the possibility exists that other persons or entities, completely
independently of the Company or its employees or agents, could have
developed trade secrets or items of technical information similar or
identical to those of the Company. The Company is not aware of any such
development of similar or identical trade secrets or technical
information by others. The Company has taken reasonable security
measures to protect the secrecy, confidentiality and value of all their
intellectual property in all material aspects.
(t) There is no outstanding claim for services in the
nature of a finder's fee, brokerage fee or otherwise with respect to this
financing by the Company for which the Company or the Underwriter may be
responsible.
(u) No officer or director of the Company or any
affiliate (as such term is defined in Rule 405 promulgated under the
Rules and Regulations) of any such officer or director has taken, and
each officer or director has agreed that he will not take, directly or
indirectly, any action designed to constitute or which has constituted or
which might reasonably be expected to cause or result in the
stabilization of the price of the Preferred Stock, the Redeemable
Warrants or the Common Stock or a violation of Rule 10b-6 of the Rules
and Regulations or in a manipulation of the price of any security issued
by the Company.
(v) No officer, director or greater than 5% stockholder
of the Company, or any "affiliate" or "associate" (as these terms are
defined in Rule 405 promulgated under the Rules and Regulations) of any
of the foregoing persons or entities has or has had, either directly or
indirectly, (i) an interest (other than ownership of an immaterial number
of shares of capital stock of an entity whose securities are publicly
traded) in any person or entity which (A) furnishes or sells products or
services 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 it may
be bound or affected. Except as set forth in the Prospectus under
"Certain Transactions," there are no existing agreements, arrangements,
or transactions, between or among the Company or any of its Subsidiaries
and any officer or director of the Company, or any partner, affiliate or
associate of any of the foregoing persons or entities.
(w) The minute books of each of the Company and the
Subsidiaries have been made available to the Underwriter and contain a
complete summary of all meetings and actions of the directors and
stockholders of each of the Company and the Subsidiaries since the time
of their respective dates of incorporation, and reflect all transactions
referred to in such minutes accurately in all respects.
(x) The Company is not aware of any bankruptcy, labor
disturbance or other event affecting any of its principal suppliers or
customers which is reasonably likely to result in a material adverse
change in the condition, financial or otherwise, prospects, business or
results of operation of the Company.
(y) The Registered Securities and all the other
securities of the Company conform to all statements in relation thereto
in the Registration Statement.
(z) On the Effective Date, (i) the authorized capital
stock of the Company will be as set forth in the Registration Statement,
and (ii) not more than an aggregate of 1,072,365 shares of Common Stock
shall be issued and outstanding, not including: (A) 3,335,000 Public
Conversion Shares reserved for issuance upon conversion of the Preferred
Stock; (B) the 290,000 Underwriter's Conversion Shares reserved for
issuance upon conversion of the Preferred Stock; (C) 8,819 shares of
Common Stock reserved for issuance under a stock option plan previously
maintained by the Company, (the "Old Option Plan"), (D) not more than
300,000 shares of Common Stock reserved for issuance under the 1996 Stock
Option Plan ("New Option Plan"); (E) 100,000 shares of Common Stock
issuable upon exercise of warrants issued in connection with a bridge
financing in September 1996 (the "Bridge Warrants"); (F) 59,524 shares of
Common Stock (subject to adjustment) reserved for issuance under the
Debenture Investment Agreement between the Company and New York State
Technology Foundation (the "NYS Foundation"), dated July 6, 1989 and as
amended May 6, 1993 and April 30, 1995 (the "Debenture Investment
Agreement"); and (G) options to purchase an aggregate of 150,000 of
Common Stock issued to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ pursuant to
employment agreements with the Company. Other than the shares of Common
Stock already issued (or reserved for issuance as described in the
immediately preceding sentence), the 1,955,000 Public Warrant Shares
reserved for issuance upon the Redeemable Warrants, the 120,000
Underwriter's Shares served for issuance upon exercise of the
Underwriter's Warrants, the 170,000 Underwriter's Warrant Shares reserved
for issuance upon exercise of the Underwriter's Redeemable Warrants, and
the Public Securities and Underwriter's Securities to be offered in or in
connection with the proposed Public Offering, no other shares of capital
stock or securities convertible into capital stock shall be outstanding
or reserved for issuance at the completion of the proposed public
offering without the consent of the Underwriter, except as contemplated
by the Registration Statement.
(aa) Except for the registration rights granted (i) under
the Underwriter's Warrant Agreement, (ii) to the holders of the Bridge
Warrants and (iii) under the Debenture Investment Agreement (each as
described in the Registration Statement), no holder of any securities of
the Company has the right to require that the Company include such
securities in the Registration Statement or any registration statement to
be filed by the Company, and any person other than the Underwriter and
the holders of the Bridge Warrants with registration rights has agreed
not to exercise any such rights within 24 months following the First
Closing Date and, in the case of the holder under the Debenture
Investment Agreement, to waive any right which it may have to include any
of such holder's securities in the Registration Statement.
(bb) Assuming that there will be two "market makers" for
the Preferred Stock, at least 300 beneficial owners of the Preferred
Stock and a sufficient "public float" of the Preferred Stock, and that
the Company's registration of the Preferred Stock pursuant to the
Securities Exchange Act of 1934 (the "1934 Act") becomes effective (all
as contemplated by the requirements of the National Association of
Securities Dealers, Inc. (the "NASD")), the Preferred Stock and the
Redeemable Warrants are eligible for quotation on The Nasdaq SmallCap
Market ("NASDAQ") and has been approved for listing on the Boston Stock
Exchange, subject to official notice of issuance. The Company has filed
a registration statement with the Commission pursuant to Sections 12(g)
and 12(b) of the 1934 Act, and has used its best efforts to have same
declared effective by the Commission on an accelerated basis on the
Effective Date.
(cc) Neither the Company nor any officer, director or
other agent of the Company has, acting on behalf of the Company, at any
time (i) made any contributions to any candidate for political office in
violation of law, or failed to disclose fully any such contributions in
violation of law, (ii) made any payment to any state, Federal or foreign
governmental officer or official, or any other person charged with
similar public or quasi-public duties, other than payments required or
not prohibited by law or (iii) made any payment of funds of the Company
or received or retained any funds in violation of any law, rule or
regulation and under circumstances requiring the disclosure of such
payment, receipt or retention of funds in the Prospectus.
(dd) Since April 30, 1996, the Company has not sustained
any material casualty loss or interference with its business from fire,
storm, explosion, flood or other like or unlike casualty, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree which is not disclosed or reflected in the
Prospectus.
(ee) The Company is not an "investment company" or a
company "controlled" by an "investment company," within the meaning of
the Investment Company Act of 1940, as amended.
(ff) No unregistered securities of the Company have been
sold by the Company within the three years prior to the date hereof,
except as disclosed in Part II of the Registration Statement.
(gg) The employment agreements between the Company and
its respective officers, as disclosed in the Registration Statement, are
or will be on or before the First Closing Date, as hereinafter defined,
binding and enforceable obligations upon the respective parties thereto
in accordance with their respective terms, except to the extent
enforceability may be limited by any bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws
affecting creditors' rights generally and to the extent that the remedy
of specific performance and injunction or other forms of equitable relief
may be subject to equitable defenses and the discretion of the court
before which any proceeding therefor may be brought.
(hh) Except as set forth in the Prospectus, the Company
has no employee benefit plans (including, without limitation, profit
sharing and welfare benefit plans) or deferred compensation arrangements
that are subject to the provisions of the Employee Retirement Income
Security Act of 1974.
(ii) There are no voting or other shareholder agreements
between the Company and any shareholders of the Company or between or by
and among any shareholders of the Company.
(jj) Each of the Company and the Subsidiaries has
generally enjoyed a satisfactory employer-employee relationship with its
employees and is in compliance with all federal, state, local, and
foreign laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours. There
are no pending investigations involving the Company or any of the
Subsidiaries by the U.S. Department of Labor or any other governmental
agency responsible for the enforcement of such federal, state, local, or
foreign laws and regulations. There is no unfair labor practice charge
or complaint against the Company or any of the Subsidiaries pending
before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or, to the Company's best
knowledge, threatened against or involving the Company or the
Subsidiaries or any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of the Company or
any of the Subsidiaries, and no collective bargaining agreement or
modification thereof is currently being negotiated by the Company or any
of the Subsidiaries. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements to which
the Company or any of the Subsidiaries is or was a party. No labor
dispute with the employees of the Company or any of the Subsidiaries
exists, or is imminent.
Any certificate signed by an officer of the Company in his
capacity as such and delivered to the Underwriter or counsel for the
Underwriter shall be deemed a representation and warranty by the Company
to the Underwriter as to the matters covered thereby.
3. PURCHASE, DELIVERY AND SALE OF THE OFFERED SECURITIES AND
THE UNDERWRITER'S WARRANTS.
(a) On the basis of the representations and warranties
herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriter the Firm Securities,
consisting of 1,200,000 shares of Preferred Stock and 1,700,000
Redeemable Warrants, and the Underwriter agrees to purchase such Firm
Securities from the Company, on a firm commitment basis, at a purchase
price of $4.50 per share of Preferred Stock and $.09 per Redeemable
Warrant.
(b) In addition, the Company hereby grants the
Underwriter the option (the "Over-allotment Option) to purchase from the
Company, at any time or from time to time during a period of forty-five
(45) calendar days from the date of the Prospectus, all or any part of
the Option Securities at a purchase price of $4.50 per share of Preferred
Stock and/or $.09 per Redeemable Warrant. Notice of exercise of the
Over-allotment Option, in whole or in part, shall be delivered by the
Underwriter to the Company at least two (2) business days in advance of
the date on which the Option Securities are to be delivered to the
Underwriter, provided that delivery of the Option Securities shall be
made concurrently with tender of payment therefor. Option Securities may
be purchased by the Underwriter only for the purpose of covering over-
allotments in the sale of the Firm Securities, and the Underwriter shall
have no obligation to make any over-allotments. No Option Securities
shall be delivered and paid for unless the Firm Securities shall be
simultaneously delivered or shall theretofore have been delivered and
paid for as herein provided.
(c) On the First Closing Date, the Company shall issue
and sell to the Underwriter the Underwriter's Warrants. The total
purchase price of the Underwriter's Warrants shall be $290. The
Underwriter's Warrants shall be exercisable for a period of four years
commencing 12 months from the Effective Date, at prices of $6.25 per
Underwriter's Share and $1.6875 per Underwriter's Redeemable Warrant,
respectively. The Underwriter's Warrant Agreement, including the forms
of Underwriter's Warrant Certificates, shall be substantially in the form
filed as Exhibit 4.5 to the Registration Statement. Payment for the
Underwriter's Warrants shall be made on the First Closing Date.
(d) Payment for the Firm Securities and the Option
Securities shall be made on each of the First Closing Date and Option
Closing Date (as hereinafter defined), respectively, by certified or bank
cashier's check in New York Clearing House funds, payable to the order of
the Company, or by wire transfer, at the offices of the Underwriter, or
at such other place as agreed upon by the Underwriter and the Company,
upon delivery of certificates (in form and substance reasonably
satisfactory to the Underwriter) representing the Firm Securities and
Option Securities to be sold at such closing or by confirmation of
electronic transfer of the Firm Securities or Option Securities, as the
case may be, to the Underwriter for the accounts of the Underwriter.
Delivery and payment for the Firm Securities shall be made at 10:00 A.M.
New York time, on or before the fifth business day following the public
offering or at such earlier time as the Underwriter shall determine or as
required by law, or at such other time as shall be agreed upon by the
Underwriter and the Company. The hour and date of delivery and payment
for the Firm Securities are called the "First Closing Date." The Firm
Securities shall be registered in such name or names and in such
authorized denominations as the Underwriter may request in writing at
least two (2) full business days prior to Closing Date. The Company will
permit the Underwriter to examine and package any certificates
representing the Firm Securities for delivery, at least one (1) full
business day prior to the First Closing Date. Delivery for each of the
Option Securities as provided above shall be made within two (2) business
days after notice of exercise to the Company, and against payment
therefor, as provided above. The hour and date of such delivery and
payment made subsequent to the First Closing Date for Option Securities
is referred to as the "Option Closing Date." The Option Securities shall
be registered in such name or names and in such denominations as the
Underwriter may request in writing at the time of exercise of the Over-
allotment Option.
(e) The Company shall not be obligated to sell or
deliver any Firm Securities except upon tender of payment by the
Underwriter for all the Firm Securities.
4. PUBLIC OFFERING BY THE UNDERWRITER. The Underwriter
agrees to cause the Firm Securities to be offered to the public initially
at the prices and under the terms set forth in the Prospectus as soon, on
or after the effective date of this Agreement, as the Underwriter deems
advisable, but no more than five (5) full business days after such
effective date. The Underwriter may allow such concessions and discounts
upon sales to other dealers as set forth in the Prospectus. The
Underwriter agrees to notify the Company in writing when the offering is
first made and when it is completed. After the completion of the initial
public offering, the public offering prices, the concessions and the
reallowance may be changed by the Underwriter.
5. AGREEMENTS OF THE COMPANY. The Company covenants and
agrees with the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective as promptly as possible, and
will not at any time, whether before or after the Effective Date, file
any amendment or supplement to the Registration Statement, (i) which
shall not have been previously submitted to, and approved by, the
Underwriter or counsel for the Underwriter a reasonable time prior to the
filing thereof, (ii) to which the Underwriter or counsel for the
Underwriter shall have reasonably objected in writing as not being in
compliance with the Act or the Rules and Regulations or (iii) which is
not in compliance with the Act or the Rules and Regulations.
(b) The Company will notify the Underwriter, promptly
after it shall have received notice of the effectiveness of the
Registration Statement or any amendment or supplement thereto, of the
receipt of any comments of the Commission with respect thereto, of the
time when the Registration Statement or any post-effective amendment
thereto has become effective or any supplement to the Prospectus has been
filed.
(c) The Company will advise the Underwriter promptly of
any request of the Commission for an amendment or supplement to the
Registration Statement or the Prospectus, or for any additional
information, or of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, or of any
judgment, order, injunction or decree preventing or suspending the use of
any Preliminary Prospectus or the Prospectus, or of the institution of
any proceedings for any of such purposes, of which it has knowledge, and
will use its best efforts to prevent the issuance of any stop order, and,
if issued, to obtain as promptly as possible the lifting thereof.
(d) If at any time when a prospectus relating to the
Public Securities and/or the Underwriter Securities is required to be
delivered under the Act, any event shall have occurred as a result of
which, in the opinion of counsel for the Company or counsel for the
Underwriter, the Prospectus, as then amended or supplemented, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Underwriter promptly
and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment
or supplement to be satisfactory to counsel for the Underwriter, and the
Company will furnish to the Underwriter copies of such amendment or
supplement as soon as available and in such quantities as the Underwriter
may request.
(e) Within the time during which the Prospectus is
required to be delivered under the Act, or pursuant to the undertakings
of the Company in the Registration Statement, the Company will comply, at
its own expense, with all requirements imposed upon it by the Act, the
Rules and Regulations, the 1934 Act or the rules and regulations of the
Commission promulgated under the 1934 Act, each as now or hereafter
amended or supplemented, and by any order of the Commission so far as
necessary to permit the continuance of sales of, or dealings in, the
Registered Securities.
(f) The Company will furnish to the Underwriter, without
charge, two (2) signed copies of the Registration Statement which has
been filed prior to the date of this Agreement, together with two (2)
copies of each exhibit filed therewith, and of five (5) conformed copies
of such Registration Statement (unsigned and exclusive of exhibits). The
signed copies of the Registration Statement so furnished to the
Underwriter will include signed copies of any and all consents and
reports of the independent public auditors as to the financial statements
included in the Registration Statement and Prospectus, and signed copies
of any and all consents and certificates of any other person whose
profession gives authority to statements made by them and who are named
in the Registration Statement or Prospectus as having prepared, certified
or reviewed any parts thereof.
(g) The Company will deliver to the Underwriter, without
charge, (i) prior to the Effective Date, copies of each Preliminary
Prospectus distributed to the public and filed with the Commission
bearing in red ink the statement required by Item 501 of Regulation S-B
of the Rules and Regulations; (ii) on and from time to time after the
Effective Date, copies of the Prospectus; and (iii) as soon as they are
available, and from time to time thereafter, copies of each amended or
supplemented Prospectus, and the number of copies to be delivered in each
such case will be such as the Underwriter may reasonably request. The
Company has consented and hereby consents to the use of each Preliminary
Prospectus for the purposes permitted by the Act and the Rules and
Regulations. The Company authorizes the Underwriter and dealers to use
the Prospectus in connection with the sale of the Offered Securities and
the Public Warrant Shares, for such period as, in the opinion of counsel
for the Underwriter, delivery of the Prospectus is required to comply
with the applicable provisions of the Act and the Rules and Regulations.
(h) For so long as any Redeemable Warrant is
outstanding, the Company shall, at its own expense, use its reasonable
best efforts to cause post-effective amendments to the Registration
Statement, or a new registration statement relating to the Public Warrant
Shares, to become effective in compliance with the Act and without any
lapse of time between the effectiveness of the Registration Statement and
of any such post-effective amendment or new registration statement. The
Company also agrees to take such action as may be necessary to qualify
the Registered Securities for offer and sale under the Blue Sky or
securities laws of such states or other jurisdictions as is required and
as the Underwriter or counsel for the Underwriter may designate (provided
that such states or jurisdictions do not require the Company to qualify
as a foreign corporation or to file a general consent to service of
process) and to continue such qualifications in effect so long as may be
required for the purposes of the distribution of the Registered
Securities. In each state or jurisdiction where the Company shall
qualify the Registered Securities as above provided, the Company will
prepare and file such statements or reports as may be required by the
laws of such state or jurisdiction, and the Underwriter shall, upon the
written request of the Company, supply the Company with all information
known to the Underwriter and required to be included in such statements
or reports.
(i) Except as otherwise provided in (iii) below, during
the period of three years from the First Closing Date, the Company, at
its expense, shall furnish the Underwriter with (i) copies of each annual
report of the Company; (ii) as soon as practicable and in any event upon
filing such report with the Commission, a financial report of the
Company, which will include a balance sheet as of the end of the
preceding fiscal year, a statement of operations, a statement of
stockholders' equity (deficit) and a statement of cash flows covering
such fiscal year, such report being in reasonable detail and audited by
independent public auditors; (iii) during the period of two years from
the First Closing Date, for each fiscal quarter of the Company other than
the last fiscal quarter in any fiscal year, as soon as practicable and in
any event upon filing such report with the Commission, a financial report
of the Company, which will include a balance sheet as of the end of the
fiscal quarter, a statement of operations, and a statement of cash flows
covering such fiscal quarter, together with notes thereto, for such
fiscal quarter and, with respect to the statement of operations, for the
fiscal year to date, setting forth in each case in comparative form the
corresponding figures for the preceding year, such report being in
reasonable detail and certified by the Chief Financial Officer of the
Company to be correct and complete, to fairly present the financial
condition of the Company at the date thereof and the results of
operations for the period then ending and to have been prepared in
accordance with generally accepted accounting principles consistently
applied, except for normal year end adjustments; and (iv) a copy of any
Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4 received or filed by the Company
from time to time; (v) a copy of any report filed by the Company pursuant
to the 1934 Act; (vi) copies of all statements, documents or other
information which the Company shall mail or otherwise make available to
any class of its security holders, or shall file with the Commission or
with any exchange upon which the securities issued by the Company shall
then be listed or registered; and (vii) such other publicly available
information as the Underwriter may from time to time request. If, and so
long as, the Company has an active subsidiary or subsidiaries, the
Company's financial statements will be on a consolidated basis to the
extent the accounts of the Company and its subsidiary or subsidiaries are
consolidated in reports furnished to its stockholders generally.
Separate financial statements shall be furnished for all subsidiaries
whose accounts are not consolidated but which at the time are significant
subsidiaries as defined by the Rules and Regulations. With respect to
each consolidated and unconsolidated significant subsidiary and
affiliate, if any, the financial reports shall be in sufficient detail to
show the basis of any consolidated reports required hereunder.
Notwithstanding the foregoing, the Company's financial statements shall
be deemed to comply with the requirements of this paragraph if they
comply with the Rules and Regulations.
(j) For a period of five years from the First Closing
Date, the Company shall not change its independent public accountants
without the Underwriter's prior consent, which consent shall not be
unreasonably withheld. For a period of five years from the First Closing
Date, the Company, at its expense, shall cause its then independent
public accountants to review (but not audit), the Company's financial
statements for each of the first three fiscal quarters prior to the
announcement of quarterly financial information, the filing of the
Company's 10-QSB quarterly report and the mailing of quarterly financial
information to stockholders, provided that such review shall not be
deemed to require submission with the 10-QSB quarterly report of a report
on the financial statements included therein from such accountants. For
a period of five years from the First Closing Date, the Company shall
promptly submit to the Underwriter copies of all accountants' management
reports and similar correspondence between the Company and its
independent public accountants.
(k) As soon as practicable, but in any event not later
than 45 days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the
Effective Date occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company will make
generally available to its security holders in accordance with Section
11(a) of the Act and Rule 158 of the Rules and Regulations an earnings
statement of the Company and its subsidiaries (which need not be audited)
in reasonable detail and covering a period of at least 12 months
beginning after the Effective Date, and advise the Underwriter that such
statement has been so made available.
(l) The Company will apply the net proceeds ("Proceeds")
it realizes from the sale of the Offered Securities in the manner set
forth under the caption "Use of Proceeds" in the Prospectus. None of the
Proceeds will be used to pay outstanding loans from officers, directors
or greater than 5% stockholders or to pay any salaries or bonuses accrued
prior to the date hereof to any employees or former employees; provided,
however, that the Underwriter acknowledges that an aggregate of
$225,588.61 of accrued salaries and commissions will be paid to ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ prior to the Closing Date.
(m) The Company on the First Closing Date will sell to
the Underwriter the Underwriter's Warrants according to the terms
specified in Section 3 hereof. The Company has reserved and shall
continue to reserve a sufficient number of shares of (i) Preferred Stock
for issuance upon exercise of the Underwriter's Warrants and the
Underwriter's Redeemable Warrants and (ii) Common Stock issuable upon
conversion of the Underwriter's Shares and Underwriter's Warrant Shares.
(n) For the five year period following the First Closing
Date, the Company agrees that the Underwriter shall have the right to
nominate, and the Company shall use its best efforts to cause the
election of, one member of the Company's Board of Directors, who shall be
reasonably acceptable to the Company; alternatively, the Underwriter may
appoint a designee to serve as an observer at all meetings of the
Company's Board of Directors, which observer would be entitled to the
same cash compensation and reimbursement of expenses as the Company
affords its directors who are not also officers or employees of the
Company and to receive all copies of all notices and other documents
distributed to the members of the Company's Board of Directors
(including, but not limited to, any unanimous consents prepared and
advance notices of all proposed Board actions or consents), as if such
observer were a member of the Company's Board of Directors; PROVIDED,
HOWEVER, that the Company may require as a condition precedent that any
such observer shall agree to hold in confidence and trust and to act in a
fiduciary manner with respect to all information, including, but not
limited to, trade secrets, so received during such meetings and may
require that such observer sign a confidentiality agreement with the
Company; and, PROVIDED, FURTHER, that the Company reserves the right not
to provide information and to exclude such observer from any meeting or
portion there of if attendance at such meeting by such observer or
dissemination of any information at such meeting to such observer would
compromise or adversely affect the attorney-client privilege between the
Company and its counsel, or would, in the good faith judgment of the
Board of Directors, result in a conflict of interest situation. The
Company shall use its reasonable efforts to promptly bring to the
attention of such observer any agenda item that, in the good faith
judgment of the Board of Directors, would result in any trade secret,
privileged matter or conflict of interest arising during such meeting and
the Board of Directors may exclude such observer (or alternatively, the
observer shall be entitled to exclude himself or herself) from any
deliberation or discussion of the Board of Directors concerning such
trade secret (if the observer has not executed a confidentiality
agreement), privileged matter or conflict of interest matter and as a
recipient in the dissemination of such information. If such observer in
his or her good faith judgment believes that an item to be discussed by
the Board of Directors would result in any conflict of interest, such
observer shall promptly bring such conflict to the attention of the
Chairman of the Board. In no event shall any provision of this paragraph
waive any obligation of confidentiality to the Company owed by any such
observer or the Underwriter. To the extent permitted by law, the Company
agrees to indemnify and hold the designee and the Underwriter harmless
against any and all claims, actions, awards and judgments arising out of
his service and in the event the Company maintains a liability insurance
policy affording coverage for the acts of its officers and directors, to
include such designee and the Underwriter as insureds under such policy,
unless inclusion of the observer or the Underwriter as an insured will
cause the Company to become subject to special insurance underwriting
classifications which would increase the cost of such insurance to the
Company. In the event the Company does not have a liability insurance
policy in effect on the First Closing Date, the Company agrees to use its
best efforts to obtain, as promptly as practicable following the First
Closing Date, such a policy in an amount reasonable and customary for
similarly situated companies, at a premium the Company can reasonably
afford. The rights and benefits of such indemnification and the benefits
of such insurance shall, to the extent possible, extend to the
Underwriter insofar as it may be, or be alleged to be, responsible for
such advisor. The Company will deliver, on or before the First Closing
Date, the agreements of each of its officers, directors and holders of 5%
or more of its Common Stock to vote, during the five year period
commencing on the First Closing Date, for the election of the
Underwriter's designee for director, if any.
(o) The Company will maintain insurance in full force
and effect of the types and in the amounts adequate for its business and
in line with insurance maintained by similar companies and businesses,
including but not limited to, personal injury insurance and insurance
covering all personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, except product liability insurance and
insurance for theft or destruction of its merchandise while in the
possession of its customers.
(p) During the course of the distribution of the Offered
Securities, the Company will not take, directly or indirectly, any action
designed to or which might, in the future, reasonably be expected to
cause or result in stabilization or manipulation of the prices of the
Preferred Stock, Redeemable Warrants and/or the Common Stock. During the
so-called "quiet period" in which delivery of a prospectus is required,
if applicable, the Company will not issue press releases or engage in any
other publicity without the Underwriter's prior written consent.
(q) The Company will use its best efforts at its cost
and expense, to take all necessary and appropriate action to maintain the
listing of the Preferred Stock and the Redeemable Warrants on NASDAQ and
the Boston Stock Exchange for a period of five years from the First
Closing Date and will, as promptly as practicable following determination
by the Company that the Preferred Stock and Redeemable Warrants will
qualify therefor, use its best efforts to list such securities on The
Nasdaq National Market and maintain such listing for as long as such
securities remain qualified.
(r) On or prior to the Effective Date, the Company shall
register with (i) the Corporation Records Service (including annual
report information) published by Standard & Poor's Corporation or (ii)
▇▇▇▇▇'▇ Industrial Manual (▇▇▇▇▇'▇ OTC Industrial Manual not being
sufficient for these purposes).
(s) The Company has filed a registration statement with
the Commission pursuant to Sections 12(b) and 12(g) of the 1934 Act with
respect to the Preferred Stock, Redeemable Warrants and Common Stock and
will use its best efforts to have same declared effective by the
Commission on or before the Effective Date. The Company will use its
best efforts to maintain such registration in effect for a period of not
less than 5 years from the Public Closing Date.
(t) The Company will at all times from the First Closing
Date until at least five (5) years from such date, maintain in full
force, or cause to be maintained in full force, from an insurer rated "A"
or better (General Policyholders Rating) in the most recent edition of
"Best Life Reports", term life insurance in the amount of at least
$1,000,000 on the life of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and use its best efforts to
obtain such a policy on the life of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇. Each such policy
shall be owned by the Company and all benefits thereunder shall be
payable to the Company.
(u) On the Closing Dates, all transfer or other taxes
(other than income taxes) which are required to be paid in connection
with the sale and transfer of the Offered Securities and the
Underwriter's Warrants will have been fully paid by the Company and all
laws imposing such taxes will have been fully complied with.
(v) On the First Closing Date, the Company and the
Underwriter shall enter into a consulting agreement, substantially in the
form filed as Exhibit 10.9 to the Registration Statement, pursuant to
which the Underwriter will offer to provide financial consulting services
to the Company for a two-year period (the "Consulting Agreement").
(x) Except for (i) the Public Securities, (ii) the
Underwriter's Securities, (iii) the issuance of Common Stock pursuant to
the exercise of warrants, options and convertible debt heretofore issued
and described in the Prospectus, and (iv) the issuance to employees,
officers, directors, advisors and consultants of stock options to
purchase a number of shares of Common Stock not to exceed 300,000 shares
pursuant to the New Option Plan and shares remaining available for grant
under the Company's other stock option plan existing on the date hereof
(provided that (A) the Company may not grant options for more than
100,000 of such shares prior to the First Closing Date, (B) any options
granted pursuant to this clause (iv) shall have an exercise price equal
to the greater of $5.00 per share and the market price per share of
Common Stock on the date of grant and (C) the vesting of such options
shall be subject to the achievement of earnings performance criteria
acceptable to the Underwriter), the Company will not, from and after the
date hereof until 24 months after the First Closing Date, sell or issue
any shares of Common Stock, Preferred Stock or other equity securities of
the Company or sell or grant options, warrants or rights to purchase any
shares of equity securities of the Company, without the Underwriter's
prior written consent, provided that, in addition, the Company will not,
from and after the date hereof until 36 months after the First Closing
Date, sell or issue any shares of Preferred Stock without the
Underwriter's consent, other than the issuance of Preferred Stock
contemplated by (i) and (ii) above, or authorize any new class or series
of capital stock. Notwithstanding the foregoing, during the 24-month
period following the First Closing Date, the Company may issue securities
in connection with an acquisition, merger or similar transaction without
the Underwriter's prior consent, provided that such securities are not
publicly registered and the acquirer of the securities is not granted
registration rights with respect thereto which are effective prior to
twenty-four (24) months after the First Closing Date.
(y) The Company will not file any registration statement
relating to the offer or sale of any of the Company's securities, other
than a registration statement on Form S-8 relating to shares of Common
Stock issuable upon exercise of options granted only to employees, during
the twenty-four (24) months following the First Closing Date without the
Underwriter's prior written consent.
(z) American Stock Transfer & Trust Company ("American
Stock") is currently the transfer agent for the Common Stock, and the
Company has appointed American Stock as transfer agent for the Preferred
Stock and warrant agent for the Redeemable Warrants. For the five (5)
year period following the First Closing Date, the Company will not change
its transfer agent or warrant agent without the prior written consent of
the Underwriter. For a period of two (2) years from the First Closing
Date, the Company, at its own expense, shall cause American Stock (or any
successor transfer and warrant agent) to provide to the Underwriter on a
weekly basis copies of the Company's daily stock transfer sheets for each
of the Preferred Stock, Redeemable Warrants and Common Stock. In
addition, for a period of two years from the First Closing Date, the
Company, at its own expense, shall cause Depository Trust Company to
provide to the Underwriter as frequently as may be required by the
Underwriter a copy of a security position listing with respect to each of
the Preferred Stock, Redeemable Warrants and Common Stock.
(aa) Subsequent to the dates as of which information is
given in the Registration Statement and Prospectus and prior to the
Closing Dates, except as disclosed in or contemplated by the Registration
Statement and Prospectus, (i) the Company will not have incurred any
liabilities or obligations, direct or contingent, or entered into any
material transactions other than in the ordinary course of business; (ii)
there shall not have been any change in the capital stock, funded debt
(other than regular repayments of principal and interest on existing
indebtedness) or other securities of the Company, any adverse change in
the condition (financial or otherwise), business, operations, income, net
worth or properties, including any loss or damage to the properties of
the Company (whether or not such loss is insured against), which could
materially adversely affect the condition (financial or otherwise),
business, operations, income, net worth or properties of the Company; and
(iii) the Company shall not have paid or declared any dividend or other
distribution on its Common Stock or its other securities or redeemed or
repurchased any of its Common Stock or other securities. The Company
shall furnish to the Underwriter as early as practicable prior to each of
the date hereof, the First 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 seventy-five
(75) days prior to the date of the Registration Statement) which have
been read by the Company's independent public accountants, as stated in
their letters to be furnished pursuant to Section 9(d) hereof.
(bb) For a period of two (2) years following the First
Closing Date, the Company shall not redeem any of its securities, and
shall not pay any dividends or make any other cash distribution in
respect of its securities in excess of the amount of the Company's
current or retained earnings derived after the First Closing Date without
obtaining the Underwriter's prior written consent, which consent shall
not be unreasonably withheld. The Underwriter shall either approve or
disapprove such contemplated redemption of securities or dividend payment
or distribution within five (5) business days from the date the
Underwriter receives written notice of the Company's proposal with
respect thereto; a failure of the Underwriter to respond within the five
(5) business day period shall be deemed approval of the transaction.
(cc) On or before the Effective Date, each of ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ will enter into employment agreements with the
Company of at least three years in length and with such other terms and
conditions as are acceptable to the Underwriter. The Company will not,
for a period of three (3) years from the First Closing Date increase or
authorize an increase in the compensation of its five (5) most highly
paid employees in any year without the prior written consent of the
Underwriter or unless permitted by the terms of employment contracts
satisfactory to the Underwriter.
(dd) The Company maintains and will continue to maintain
a system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary in order to permit preparation of financial
statements in accordance with generally accepted accounting principles
and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(ee) For a period of five (5) years from the First
Closing Date, the Company shall provide the Underwriter, on a not less
than annual basis, with internal forecasts setting forth projected
results of operations for each quarterly and annual period in the two (2)
fiscal years following the respective dates of such forecasts. Such
forecasts shall be provided to the Underwriter more frequently than
annually if prepared more frequently by management, and revised forecasts
shall be prepared and provided to the Underwriter when required to
reflect more current information, revised assumptions or actual results
that differ materially from those set forth in the forecasts.
(ff) ▇▇▇▇▇▇▇, ▇▇▇▇▇ Associates is currently the public
relations firm for the Company. For a period of two years after the
Effective Date, any change of the financial public relations firm will be
reasonably acceptable to the Underwriter.
(gg) No proceeds from the sale of the Public Securities
or any other available funds of the Company will be used to pay
outstanding loans from officers, directors or greater than 5%
shareholders or to pay any accrued salaries or bonuses to any current or
former employees or consultants or any affiliates thereof within 24
months after the First Closing Date or (except as set forth in the "Use
of Proceeds" section in the Prospectus) to pay off any other outstanding
debt other than loans outstanding with the North Greenbush Industrial
Development Agency and the NYS Foundation, current trade payables which
arose in the ordinary course of business or loans and lines of credit
incurred after the Effective Date with financial institutions.
(hh) The Company agrees that for so long as the Preferred
Stock is registered under the 1934 Act, the Company will hold an annual
meeting of shareholders for the election of directors within 190 days
after the end of each of the Company's fiscal years and, within 150 days
after the end of each of the Company's fiscal years, will provide the
Company's shareholders with the audited financial statements of the
Company as of the end of the fiscal year just completed prior thereto.
Such financial statements shall be those required by applicable rules
under the 1934 Act and shall be included in an annual report pursuant to
the requirements thereof.
(ii) 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 S-1 or Form SB-
2 (or other appropriate form) for the registration under the Act of the
Underwriter's Redeemable Warrants, the Underwriter's Shares or the
Underwriter's Warrant Shares.
(jj) The Company hereby appoints, effective as of the
First Closing Date, the Underwriter as the Company's exclusive warrant
solicitation agent in the event of any solicitation of the exercise of
the Redeemable Warrants, in connection with a redemption of the
Redeemable Warrants or otherwise, commencing one year after the Effective
Date, and shall pay to the Underwriter a Warrant Solicitation fee of five
(5%) percent of the exercise price of all solicited Redeemable Warrants,
subject to the rules and regulations of the NASD with regard to such
fees.
(kk) The Company shall pay, at the First Closing Date, in
an aggregate amount not to exceed $10,000, for the cost of engaging (i) a
firm of the Underwriter's choice to conduct an investigation of the
Company and its principals and (ii) a consultant of the Underwriter's
choice to provide a written analysis of the Company's business and
prospects.
(ll) Promptly following the First Closing Date the Board
of Directors shall designate an Audit Committee, at least one of whose
members shall be the director, if any, who is designated by the
Underwriter, and another of whose members shall be an independent
director.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless
the Underwriter and each person, if any, who controls the Underwriter
within the meaning of Section 15 of the Act against any losses, claims,
damages, expenses or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all reasonable attorney's fees), to which
the Underwriter or any such controlling person may become subject, under
the Act or otherwise, but only as such losses, claims, damages or
liabilities (or action in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company
will not be liable in any such case to the extent that any such loss,
claim, damages or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, in reliance upon, and
in conformity with, written information furnished to the Company by the
Underwriter specifically for use in the preparation thereof. The
information set forth on the cover page concerning the Underwriter and
under the caption "Underwriting" or otherwise specifically relating to
the Underwriter in the Registration Statement shall be deemed to have
been furnished to the Company by the Underwriter for purposes hereof.
This indemnity will be in addition to any liability which the Company may
otherwise have.
(b) The Underwriter agrees that it will indemnify and
hold harmless the Company, each of its directors, each nominee (if any)
for director named in the Prospectus, each of its officers who has signed
the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Act, against any losses,
claims, damages, expenses or liabilities (which shall, for all purposes
of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorney's fees), joint or several, to which
the Company or any such director, nominee, officer or controlling person
may become subject under the Act or otherwise, but only as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each
case only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus or the Prospectus or such amendment
or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by the Underwriter specifically for
use in the preparation thereof, PROVIDED, HOWEVER, that the obligation of
each Underwriter to indemnify the Company (including any controlling
person, director or officer thereof) shall (i) only relate to any untrue
statement or alleged untrue statement or any omission or alleged omission
which applies to such Underwriter and (ii) be limited in amount to the
net proceeds received by the Company from the Underwriter. This indemnity
will be in addition to any liability which the Underwriter may otherwise
have.
(c) Promptly after receipt by an indemnified party under
this Section 6 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 6, notify the
indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve the indemnifying party
from any liability which it may have to any indemnified party otherwise
than solely pursuant to this Section 6. In case any such action is
brought against any indemnified party, which notifies the indemnifying
party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may choose,
jointly with any other indemnifying party similarly notified, reasonably
assume the defense thereof. Subject to the provisions herein stated and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Section 6 for any
legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall have a default
judgment entered against it or shall settle such action without the
consent of the indemnified party. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall not
be at the expense of the indemnifying party if the indemnifying party has
assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by
the indemnifying party, (ii) the named parties to such action (including
any impleaded parties) include both the indemnified and the indemnifying
party and the indemnified party shall have been advised by such counsel
that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses
which may be available to the indemnified party (in which case the
indemnifying party shall not have the right to assume the defense of such
action on behalf of the indemnified party, it being understood, however,
that the indemnifying party shall, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable only for the reasonable fees and expenses of one
separate firm of attorneys for the indemnified party, which firm shall be
designated in writing by the indemnified party), or (iii) the
professional competence of the counsel to be employed by the indemnifying
party is not reasonably acceptable to the indemnified party. No
settlement of any action against an indemnified party shall be made
without the prior written consent of the indemnified party, which consent
shall not be unreasonably withheld. The indemnifying party shall not be
liable to indemnify the indemnified party for any settlement of any
action effected without the indemnifying party's prior written consent to
any such settlement, which consent shall not be unreasonably withheld.
7. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which (i) the Underwriter makes
a claim for indemnification pursuant to Section 6 hereof but it is
judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express
provisions of Section 6 provide for indemnification in such case, or (ii)
contribution under the Act may be required on the part of the
Underwriter, then the Company and the Underwriter shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be
subject (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all
attorneys' fees), in either such case (after contribution from others) in
such proportions such that the Underwriter shall be responsible in the
aggregate for that portion of such losses, claims, damages or liabilities
determined by multiplying the total amount of such losses, claims,
damages or liabilities by the difference between the aggregate public
offering prices of the Shares and Redeemable Warrants and the aggregate
purchase prices of the Shares and Redeemable Warrants to such Underwriter
and dividing the product by the aggregate public offering prices of the
Shares and Redeemable Warrants, and the Company shall be responsible for
that portion of such losses, claims, damages or liabilities determined by
multiplying the total amount of such losses, claims, damages or
liabilities by the aggregate purchase prices of the Shares and Redeemable
Warrants to the Underwriter and dividing the product thereof by the
aggregate public offering prices of the Shares and Redeemable Warrants.
No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. The
foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under Section 11 of the Act
other than the Company and the Underwriter. As used in this Section 7,
the term "Underwriter" includes any person who controls the Underwriter
within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this Section 7 is not permitted by law, then
the Underwriter shall be entitled to contribution from the Company, its
officers, directors and controlling persons to the fullest extent
permitted by law. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect to which a claim for contribution may be
made against another party or parties under this Section 7, notify such
party or parties from whom contribution may be sought, but the omission
so to notify such party or parties shall not relieve the party or parties
from whom contribution may be sought from any obligation it or they may
have hereunder or otherwise than under this Section 7, or to the extent
that such party or parties were not adversely affected by such omission.
The contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may have at common law or
otherwise.
8. SURVIVAL OF AGREEMENTS, ETC. All statements contained in
any schedule, exhibit or other instrument delivered by or on behalf of
the parties hereto, or in connection with the transactions contemplated
by this Agreement, shall be deemed to be representations and warranties
hereunder. Notwithstanding any investigations made by or on behalf of
the parties to this Agreement, all representations, warranties,
indemnities, and agreements made by the parties to this Agreement or
pursuant hereto shall remain in full force and effect and will survive
delivery of and the payment for the Offered Securities, for a period of
five years from the date hereof, except that, if a party hereto has
actual knowledge at the time of the Closing Dates of facts which would
constitute a breach of the representations and warranties contained
herein, such breaches shall be waived by such party if such party
consummates the transactions contemplated by this Agreement.
9. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations
of the Underwriter hereunder will be subject to the accuracy of and
compliance with (as of the date of this Agreement and as of the Closing
Dates) the representations, warranties and agreements contained in
Sections 2 and 5 hereof and to the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 p.m., New York City time, on the date of
this Agreement, or such later date as shall be consented to in writing by
the Underwriter; and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that
purpose shall have been initiated or be pending or, to the knowledge of
the Company or the Underwriter, contemplated or threatened by the
Commission; any request by the Commission for additional information to
be included in the Registration Statement or the Prospectus or otherwise
shall have been complied with to the satisfaction of counsel for the
Underwriter; qualification under the securities laws of such states as
the Underwriter may designate of the issue and sale of the Offered
Securities upon the terms and conditions herein set forth or contemplated
and containing no provision unacceptable to the Underwriter shall have
been secured; and no stop order shall be in effect denying or suspending
effectiveness of such qualifications, nor shall any stop order
proceedings with respect thereto be instituted or pending or, to the
knowledge of the Company and the Underwriter, threatened under such laws.
If the Company has elected to rely upon Rule 430A of the Rules and
Regulations, the prices of the Shares and Redeemable Warrants and any
price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the
Rules and Regulations within the prescribed time period, and prior to the
First Closing Date the Company shall have provided evidence satisfactory
to the Underwriter of such timely filing, or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the Rules
and Regulations.
(b) No amendments to the Registration Statement, any
Preliminary Prospectus or the Prospectus to which the Underwriter or
counsel for the Underwriter shall have objected, after having received
reasonable notice of a proposal to file the same, shall have been filed.
(c) The Underwriter shall not have discovered and
disclosed to the Company prior to the respective Closing Dates that the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, contains an untrue statement of fact which, in the reasonable
opinion of counsel for the Underwriter, is material, or omits to state a
fact which, in the opinion of such counsel, is material and is required
to be stated therein or is necessary to make the statements therein not
misleading.
(d) The Underwriter shall have received from ▇▇▇▇▇▇,
▇▇▇▇ & ▇▇▇▇▇▇, P.C., two certificates or letters, one dated and delivered
on the Effective Date and one dated and delivered on the First Closing
Date, in form and substance satisfactory to the Underwriter, stating
that:
(i) they are independent certified public accountants
with respect to the Company within the meaning of the Act and the Rules
and Regulations, and no disclosure under Item 13 of a registration
statement on Form SB-2 is required insofar as it relates to them;
(ii) the financial statements included in the
Registration Statement and the Prospectus were examined by them and, in
their opinion, comply as to form in all material respects with the
applicable requirements of the Act, the Rules and Regulations and
instructions of the Commission with respect to registration statements on
Form SB-2 and that the Underwriter may rely upon the opinion of such firm
with respect to the financial statements included in the Registration
Statement;
(iii) on the basis of inquiries and procedures
conducted by them (not constituting an examination in accordance with
generally accepted auditing standards), including a reading of the latest
available unaudited interim financial statements or other financial
information of the Company (with an indication of the date of the latest
available unaudited interim financial statements), inquiries of officers
of the Company who have responsibility for financial and accounting
matters, reviews of minutes of all meetings of the shareholders and the
Board of Directors of the Company and its subsidiaries since April 30,
1996, and other specified inquiries and procedures, nothing has come to
their attention as a result of the foregoing inquiries and procedures
that causes them to believe that:
(A) during the period from (and including)
April 30, 1996 to a specified date not more than five days prior to the
date of such letter, there has been any change in the Common Stock or
other securities of the Company (except as specifically disclosed in such
certificates or letters), any decreases in shareholders' equity or
working capital or any increases in net current liabilities, net
liabilities or long-term debt (except, regarding the foregoing, for
decreases resulting from operating losses continuing at rates
commensurate with those incurred in prior periods) or in any other item
appearing in the Company's financial statements as to which the
Underwriter may request advice, in each case as compared with amounts
shown in the audited balance sheet as of April 30, 1996, as included in
the Prospectus, except in each case for changes, increases or decreases
which the Prospectus discloses have occurred or will or may occur; and
(B) during the period from (and including)
April 30, 1996 to such specified date there was any decrease in revenues
or in the total or per share amounts of income before extraordinary items
or net income or loss, or any other material change in such other items
appearing in the Company's financial statements as to which the
Underwriter may request advice, in each case as compared with the
corresponding period in the fiscal period ended April 30, 1996, except in
each case for increases, changes or decreases which the Prospectus
discloses have occurred or will or may occur.
(iv) On the basis of certain procedures specified by
the Underwriter and described in their letter, they have compared
specific dollar amounts, numbers of shares, percentages of revenue and
earnings and other information (to the extent they are contained in or
derived from the accounting records of the Company, and excluding any
questions of legal interpretations) included in the Registration
Statement and Prospectus with the accounting records and other
appropriate data of the Company and have found them to be in agreement.
Any changes, increases or decreases in the items set
forth in such letter which, in the sole judgment of the Underwriter, are
materially adverse with respect to the financial position or results of
operations of the Company shall be deemed to constitute a failure of the
Company to comply with the conditions of the obligations to the
Underwriter hereunder.
(e) The Underwriter shall have received from ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇ ("▇▇▇▇▇▇ ▇▇▇▇▇▇"), counsel for the Company, two
opinions, one dated and delivered on the Effective Date and one dated and
delivered on the First Closing Date, in form and substance reasonably
satisfactory to Zimet, Haines, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel for the
Underwriter, to the effect that:
(i) Each of the Company and the U.S. Subsidiary
(A) has been duly organized and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation, (B) to
the best of such counsel's knowledge, is duly qualified and in good
standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification, except where the failure to so qualify would
not have a material adverse effect on its business, and (C) has all
requisite corporate power and authority, and, to the best of such
counsel's knowledge, all material licenses, permits, certifications,
registrations, approvals, consents and franchises, to own or lease its
properties and conduct its business as described in the Prospectus. To
the best of such counsel's knowledge, each of the Company and the U.S.
Subsidiary is and has been doing business in material compliance with all
such licenses, permits, certifications, registrations, approvals,
consents and franchises and all federal, state and local laws, rules and
regulations; and, to the best of such counsel's knowledge, neither the
Company nor the U.S. Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such licenses, permits,
certifications, registrations, approvals, consents and franchises which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially adversely affect the business,
operations, condition, financial or otherwise, or the earnings, business
affairs, position, prospects, value, operation, properties, business or
results of operations of the Company and the U.S. Subsidiary, taken as a
whole. To the best of such counsel's knowledge, the disclosures in the
Registration Statement concerning the effects of federal, state and local
laws, rules and regulations on the business of the Company and the U.S.
Subsidiary as currently conducted are correct in all material respects
and do not omit to state a fact necessary to make the statements
contained therein not misleading in light of the circumstances in which
they were made.
(ii) The Shares have been duly authorized and,
when issued and delivered pursuant to this Agreement, will be duly
authorized, validly issued, fully paid and non-assessable. The
Redeemable Warrants have been duly authorized and, when issued and
delivered pursuant to this Agreement, will constitute valid and legally
binding obligations of the Company enforceable in accordance with their
terms, subject to the Enforceability Exceptions, and will be entitled to
the benefits provided by the Public Warrant Agreement. The Public
Warrant Shares have been reserved for issuance upon exercise of the
Redeemable Warrants and, when issued in accordance with the terms of the
Redeemable Warrants and Public Warrant Agreement, will be duly
authorized, validly issued, fully paid and non-assessable. The Public
Conversion Shares have been reserved for issuance upon conversion of the
Preferred Stock and, when issued in accordance with the terms of the
Certificate of Designation, will be duly authorized, validly issued,
fully paid and non-assessable. The Underwriter's Warrants have been duly
authorized and, when issued and delivered pursuant to this Agreement,
will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms, subject to the Enforceability
Exceptions, and will be entitled to the benefits provided by the
Underwriter's Warrant Agreement. The Underwriter's Shares have been
reserved for issuance upon exercise of the Underwriter's Warrants and,
when issued in accordance with the terms of the Underwriter's Warrants
and Underwriter's Warrant Agreement, will be duly authorized, validly
issued, fully paid and non-assessable. The Underwriter's Redeemable
Warrants, when issued in accordance with the terms of the Underwriter's
Warrants and Underwriter's Warrant Agreement, will be duly authorized and
will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms, subject to the Enforceability
Exceptions, and will be entitled to the benefits provided by the Public
Warrant Agreement. The Underwriter's Warrant Shares have been reserved
for issuance upon exercise of the Underwriter's Redeemable Warrants and
when issued in accordance with the terms of the Underwriter's Redeemable
Warrants and the Public Warrant Agreement, will be duly authorized,
validly issued, fully paid and non-assessable. The Underwriter's
Conversion Shares have been reserved for issuance upon conversion of the
Preferred Stock and, when issued in accordance with the terms of the
Certificate of Designation, will be duly authorized, validly issued,
fully paid and non-assessable. To the best of such counsel's knowledge,
neither the issuance of any of the Public Securities nor any of the
Underwriter's Securities will violate or otherwise be subject to the
preemptive rights of any holders of any security of the Company or
similar contractual rights granted by the Company, and none of the
holders of any of the Public Securities or any of the Underwriter's
Securities will be subject to personal liability by reason of being such
holders. The certificates representing the Preferred Stock and
Redeemable Warrants are in due and proper form. Upon delivery of the
Offered Securities to the Underwriter against payment therefor as
provided for in this Agreement, the Underwriter (assuming it is a bona
fide purchaser within the meaning of the Uniform Commercial Code) will
acquire good title to the Offered Securities, free and clear of all
liens, encumbrances, equities, security interests and claims.
(iii) Except as described in the Registration
Statement, to the best of such counsel's knowledge, the Company does not
own an interest in any corporation, partnership, joint venture, trust or
other business entity.
(iv) The Company has corporate power and
authority to enter into this Agreement, the Public Warrant Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement and to
consummate the transactions provided for herein and therein, and each of
such agreements has been duly and validly authorized, executed and
delivered by the Company and is a valid and binding agreement of the
Company, enforceable against the Company in accordance with its
respective terms, subject to the Enforceability Exceptions. The
consummation of the transactions contemplated by this Agreement, the
Public Warrant Agreement, the Underwriter's Warrant Agreement and the
Consulting Agreement by the Company and the compliance by the Company
with the terms of this Agreement, the Public Warrant Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement have each
been duly authorized by all corporate action.
(v) To the best of such counsel's knowledge, (A)
there are no contracts or other documents required under the Act and the
Rules and Regulations to be filed as exhibits to the Registration
Statement other than those filed or incorporated by reference as exhibits
thereto, and the exhibits filed or incorporated by reference are correct
copies of the documents of which they purport to be copies, (B) there are
no legal or governmental proceedings pending or threatened against the
Company which could materially adversely affect the business, or
financial condition or questions the validity of the capital stock of the
Company that have not been disclosed in the Prospectus, (nor are there
circumstances which may give rise to the same) and (C) the Company is in
compliance with all statutes, rules and regulations, except where the
failure to so comply would not materially adversely affect the business
or financial condition of the Company.
(vi) The Registration Statement is effective
under the Act and, if applicable, filing of all pricing information has
been timely made in the appropriate form under Rule 430A. To the best of
such counsel's knowledge, no proceedings for a stop order are pending or
threatened under the Act.
(vii) All material consents, approvals,
authorizations or orders of any court or governmental agency or body
(other than such as may be required by the NASD or by state securities or
Blue Sky laws, as to which no opinion need be rendered) required in
connection with the consummation of the transactions contemplated by this
Agreement, the Public Warrant Agreement, the Underwriter's Warrant
Agreement and the Consulting Agreement have been obtained and are in
effect. No transfer tax is payable by or on behalf of the Underwriter in
connection with (A) the issuance by the Company of any of the Offered
Securities, (B) the purchase by the Underwriter of any of the Offered
Securities or the Underwriter's Warrants from the Company, or (C) the
consummation by the Company of any of its obligations under this
Agreement, the Public Warrant Agreement or the Underwriter's Warrant
Agreement.
(viii) Neither the execution and delivery of this
Agreement, the Public Warrant Agreement, the Underwriter's Warrant
Agreement or the Consulting Agreement, nor the issuance and sale of the
Registered Securities, nor the consummation of the transactions
contemplated hereby or thereby, nor the compliance by the Company with
the terms and provisions hereof or thereof, will, to the best knowledge
of such counsel, conflict with, or result in a material breach of, any of
the terms and provisions of, or constitute a material default under, or
result in the creation or imposition of any material lien, charge or
encumbrance upon any property or assets of the Company pursuant to the
terms of any mortgage, deed of trust, note, indenture or loan or credit
agreement or any other material agreement or instrument known to such
counsel to which the Company is a party or by which the Company may be
bound or to which any of the property or assets of the Company is
subject; nor will such action result in any material violation of the
provisions of the Certificate of Incorporation or the By-Laws of the
Company, as amended and in effect on the date of such opinion, or
(assuming compliance with all applicable NASD rules and regulations and
state securities and Blue Sky laws), to the best of such counsel's
knowledge, any material statute or any order, rule or regulation
applicable to the Company of any court or of any federal, state or other
regulatory authority or other governmental body having jurisdiction over
the Company, or, to the best of such counsel's knowledge, have any
material adverse effect on any license, permit, certification,
registration, approval, consent, or franchise necessary for the Company
to own, lease or operate its properties and to conduct its business.
(ix) The Registration Statement, each Preliminary
Prospectus that has been circulated and the Prospectus and any post-
effective amendments or supplements thereto (other than the financial
statements, schedules and other financial and statistical data included
therein, as to which no opinion need be rendered) comply as to form in
all material respects with the requirements of the Act and Regulations
and the conditions for use of a registration statement on Form SB-2 have
been satisfied by the Company. Such counsel shall state that such
counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent public
accountants for the Company and representatives of the Underwriter at
which the contents of the Registration Statement, the Prospectus and
related matters were discussed and, although such counsel is not passing
upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and Prospectus, on the basis of the foregoing, no facts have
come to the attention of such counsel which lead them to believe that
either the Registration Statement or any amendment thereto at the time
such Registration Statement or amendment became effective or the
Prospectus as of the date of such opinion contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or to make the statements therein in light of the
circumstances under which they were made, not misleading (it being
understood that such counsel need express no opinion with respect to the
financial statements and schedules and other financial and statistical
data included in the Registration Statement or Prospectus or with respect
to statements or omissions made therein in reliance upon information
furnished in writing to the Company on behalf of any Underwriter
expressly for use in the Registration Statement or the Prospectus).
(x) The Registered Securities and all other
securities issued or issuable by the Company conform in all material
respects to the description thereof contained in the Registration
Statement and the Prospectus.
(xi) To the best of such counsel's knowledge, the
items of personal property stated in the Prospectus to be owned or leased
by the Company as lessee are free and clear of all liens, encumbrances,
claims, security interests, defects and restrictions of any material
nature whatsoever, other than those referred to in the Prospectus
(including the financial statements and notes thereto included therein),
and liens for taxes not yet due and payable.
(xii) To the best of such counsel's knowledge,
except as set forth in the Prospectus the Company is not in breach of, or
in default under, any term or provision of any material indenture,
mortgage, deed of trust, lease, note, loan or credit agreement or any
other material agreement or instrument evidencing an obligation for
borrowed money, or any material term of any other material agreement or
instrument to which it is a party or by which it or any of its properties
may be bound or affected, the effect of which could be materially adverse
to the condition (financial or otherwise), earnings or business prospects
of the Company; and the Company is not in violation of any term or
provision of its Certificate of Incorporation or By-Laws, as amended and
in effect on the date of such opinion, or, to the best of such counsel's
knowledge, in violation of any material franchise, license, permit,
judgment, decree, order, statute, rule or regulation, except as referred
to in the Prospectus.
(xiii) The descriptions in the Registration
Statement and the Prospectus and any supplement or amendment thereto of
contracts and other documents to which the Company or the U.S. Subsidiary
is a party or by which it is bound, including any document to which the
Company or the U.S. Subsidiary is a party or by which it is bound and
which is incorporated by reference into the Prospectus and any supplement
or amendment thereto, are accurate in all material respects and fairly
represent the information required to be shown by Form SB-2. The
statements in the Prospectus under "Risk Factors," "Business,"
"Management," "Certain Transactions" and "Description of Securities" have
been reviewed by such counsel, and insofar as they refer to statements of
law, descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects. There are no material
statutes, regulations or government classifications or, to the best of
such counsel's knowledge, material contracts or documents of a character
to be described in the Registration Statement or the Prospectus which are
not so described as required.
(xiv) The Preferred Stock, Redeemable Warrants and
Common Stock are listed on NASDAQ and the Boston Stock Exchange.
(xv) The authorized and outstanding capital stock
of the Company is as set forth under the caption "Capitalization" in the
Prospectus; all of the issued and outstanding capital stock, options and
warrants of the Company have been duly authorized and validly issued and
all of the issued and outstanding shares of capital stock of the Company
are fully paid and nonassessable; the holders are not subject to personal
liability by reason of being holders; and none of such securities or
interests were issued in violation of the preemptive rights or similar
rights which may be applicable under Delaware law or, to the best
knowledge of such counsel, which may be applicable under any contract or
agreement to which any holder of any security or interest of the Company
is a party.
(xvi) To the best of such counsel's knowledge, no
person, corporation, trust, partnership, association or other entity has
the right to include and/or register any securities of the Company in the
Registration Statement and, except as set forth in the Prospectus, no
holder of any of the Company's securities has any right, "demand",
"piggyback" or otherwise, to have such securities registered under the
Act.
(xvii) To the best of such counsel's knowledge,
except as disclosed in the Prospectus, there is no 99action, suit or
proceeding pending, or threatened, against or affecting the Company or
the U.S. Subsidiary before any court or arbitrator or governmental body,
agency or official (or any basis thereof known to such counsel) in which
there is a reasonable possibility of an adverse decision which may result
in a material adverse change in the condition (financial or otherwise),
earnings or business prospects of the Company, which could adversely
affect the present or prospective ability of the Company to perform its
obligations under this Agreement, the Public Warrant Agreement, the
Underwriter's Warrant Agreement or the Consulting Agreement or which in
any manner draws into question the validity or enforceability of this
Agreement, the Public Warrant Agreement, the Underwriter's Warrant
Agreement or the Consulting Agreement.
(xviii) To the best of such counsel's knowledge,
there are no claims, payments, issuances, arrangements or understandings
for services in the nature of a finder's or origination fee with respect
to the sale of the Securities hereunder or financial consulting
arrangement or any other arrangements, agreements, understandings,
payments or issuances that may affect the Underwriter's compensation, as
determined by the NASD;
In rendering such opinion, such counsel may rely (A)
as to matters involving the application of laws other than the laws of
the United States and jurisdictions in which they are admitted to the
extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to Underwriter's counsel) of other counsel
reasonably acceptable to Underwriter's counsel, familiar with the
applicable laws; and (B) as to matters of fact, to the extent they deem
proper, on certificates and written statements of responsible officers of
the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company,
provided that copies of any such statements or certificates shall be
delivered to Underwriter's counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and, in their opinion,
the Underwriter and they are justified in relying thereon.
At the Option Closing Date, the Underwriter shall
have received the favorable opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇ dated such date,
addressed to the Underwriter and in form and substance satisfactory to
Zimet, Haines, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel to the Underwriter, confirming
as of such date the statements made by ▇▇▇▇▇▇ ▇▇▇▇▇▇ in their opinion
delivered on the First Closing Date.
(f) All corporate proceedings relating to this
Agreement, the Registered Securities, the Registration Statement, each
Preliminary Prospectus, the Prospectus and other related matters shall be
satisfactory to, or approved by, counsel for the Underwriter, and the
Underwriter shall have received from such counsel a signed opinion, in
form and substance reasonably satisfactory to the Underwriter, dated the
First Closing Date, with respect to such corporate proceedings and other
legal matters in connection with this Agreement, the Registered
Securities, the Registration Statement, the Prospectus (other than the
financial statements and other financial data contained therein) and
related matters as the Underwriter may reasonably require, and the
Company shall have furnished to such counsel such documents, certificates
and opinions as they may have requested for the purpose of enabling them
to pass upon such matters.
(g) The Underwriter shall have received a certificate,
dated and delivered as of the date of the First Closing Date, of the
Chief Executive Officer and Secretary of the Company stating that:
(i) The Company and such officers have complied with
all the agreements and satisfied all the conditions on their respective
part to be performed or satisfied hereunder at or prior to such date,
including but not limited to the agreements and covenants of the Company
set forth in Section 5 hereof.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been instituted or are pending, or to their knowledge,
contemplated or threatened under the Act.
(iii) Such officers have carefully examined the
Registration Statement and the Prospectus and any supplement or amendment
thereto, each of which contains all statements required to be stated
therein or necessary to make the statements therein not misleading and
does not contain any untrue statement of a material fact, and since the
Effective Date there has occurred no event required to be set forth in
the amended or supplemented prospectus which has not been set forth.
(iv) As of the date of such certificate, the
representations and warranties contained in Section 2 hereof are true and
correct as if such representations and warranties were made in their
entirety on the date of such certificate, and further certifying as to
the matters referred to in Sections 9(h) and (i).
(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as contemplated in the Prospectus, the Company has not incurred
any liabilities or obligations, direct or contingent, or entered into any
material transactions other than in the ordinary course of business and
there has not been any change in the Common Stock or funded debt of the
Company or any material adverse change in the condition (financial or
otherwise), business, operations, income, net worth, properties or
prospects of the Company.
(vi) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
the Company shall have not sustained any material loss of or damage to
its properties, whether or not insured, and since such respective dates,
no dividends or distributions whatever shall have been declared or paid,
or both, on or with respect to any security (except interest in respect
of loans) of the Company.
(vii) Neither the Company nor any of its officers or
affiliates shall have taken, and the Company, its officers and affiliates
will not take, directly or indirectly, any action designed to, or which
might reasonably be expected to, cause or result in the stabilization or
manipulation of the price of the Company's securities to facilitate the
sale or resale of the Offered Securities.
(viii) No action, suit or proceeding, at law or in
equity, shall be pending or, to the knowledge of such officers,
threatened against the Company, or affecting any of its properties,
before or by any commission, board or other administrative agency, except
as otherwise set forth in the Registration Statement.
(h) On the First Closing Date, the Company shall not be
a party to, or be involved in, any arbitration, litigation (except as set
forth in the Registration Statement and described in the Company's Form
10-KSB for the year ended April 30, 1996) or governmental proceeding,
which is then pending, or, to the knowledge of the Company, threatened,
of a character which might materially and adversely affect the Company or
be required to be disclosed in the Registration Statement.
(i) The Company shall not have sustained, at any time
since April 30, 1996, any loss on account of fire, flood, accident, or
other calamity, whether or not covered by insurance, which, in the sole
judgment of the Underwriter, adversely affects the business of the
Company.
(j) All of the Shares and Redeemable Warrants shall have
been tendered for delivery in accordance with the terms and provisions of
this Agreement.
(k) At each of the Closing Dates, (i) the
representations and warranties of the Company contained in this Agreement
shall be true and correct with the same effect as if made on and as of
the Closing Dates and the Company shall have performed, in all material
respects, all its obligations due to be performed prior thereto; (ii) the
Registration Statement and the Prospectus and any amendment or supplement
thereto shall contain all statements which are required to be stated
therein in accordance with the Act and the Rules and Regulations and
conform in all material respects to the requirements thereof, and neither
the Registration Statement nor the Prospectus nor any amendment or
supplement thereto shall contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; (iii) there
shall have been, since the date as of which information is given, no
material adverse change in the condition, business, operations,
properties, business prospects, securities, long-term or short-term debt
or general affairs of the Company from that set forth in the Registration
Statement or the Prospectus, except changes which the Registration
Statement and the Prospectus indicate will occur after the Effective Date
and prior to such Closing Date, and the Company shall not have incurred
any material liabilities or obligations, direct or contingent, or entered
into any material transaction, contract or agreement not in the ordinary
course of business other than as referred to in the Registration
Statement and the Prospectus; and (iv) except as set forth in the
Prospectus, no action, suit or proceeding, at law or in equity, shall be
pending or, to the knowledge of the Company, threatened against the
Company which might be required to be set forth in the Registration
Statement, and no proceedings shall be pending or, to the knowledge of
the Company, threatened against the Company before or by any commission,
board or administrative agency in the United States or elsewhere, wherein
an unfavorable decision, ruling or finding might adversely affect the
condition, business, operations, properties, prospects or general affairs
of the Company.
(l) Upon exercise of the Over-allotment Option provided
for in Section 3(b) hereof, the obligations of the Underwriter to
purchase and pay for the Option Shares and/or the Redeemable Warrants
will be subject to the following additional conditions:
(i) The Registration Statement shall remain effective
at the Option Closing Date, and no stop order suspending the
effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending, or, to the
knowledge of the Underwriter or the Company, shall be contemplated by the
Commission, and any request on the part of the Commission for additional
information shall have been complied with to the satisfaction of counsel
for the Underwriter.
(ii) At the Option Closing Date there shall have been
delivered to the Underwriter the signed opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇, counsel
for the Company, in form and substance reasonably satisfactory to Zimet,
Haines, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel for the Underwriter, which opinion
shall be substantially the same in scope and substance as the opinions
furnished to the Underwriter by such counsel at the First Closing Date
pursuant to Section 9(e).
(iii) At the Option Closing Date there shall have been
delivered to the Underwriter a certificate of the Chief Executive Officer
and the Secretary of the Company dated the Option Closing Date, in form
and substance satisfactory to counsel for the Underwriter, substantially
the same in scope and substance as the certificates furnished to the
Underwriter at the First Closing Date pursuant to Section 9(g).
(iv) At the Option Closing Date there shall have been
delivered to the Underwriter a certificate or letter, in form and
substance satisfactory to the Underwriter, from ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇,
P.C., dated the Option Closing Date and addressed to the Underwriter,
confirming the information in its certificate or letter referred to in
Section 9(d) hereof and stating that nothing has come to their attention
during the period from the ending date of their review referred to in
said certificate or letter to a date not more than five business days
prior to the Option Closing Date which would require any change in said
certificate or letter if it were required to be dated the Option Closing
Date.
(v) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and transfer of the Option
Securities shall be satisfactory in form and substance to the
Underwriter, and the Underwriter and counsel for the Underwriter, shall
have been furnished with all such documents, certificates, affidavits and
opinions as the Underwriter and counsel for the Underwriter may
reasonably request in connection with this transaction in order to
evidence the accuracy and completeness of any of the representations,
warranties or statements of the Company or its compliance with any of the
covenants or conditions contained herein.
(m) The Company shall have executed and delivered the
Public Warrant Agreement, the Underwriter's Warrant Agreement and the
Consulting Agreement, and shall have issued the Underwriter's Warrants.
(n) The Company shall have furnished to the Underwriter
such other certificates, documents, and opinions as the Underwriter may
have reasonably requested (including certificates of officers of the
Company) as to the accuracy, at the Closing Dates, of the representations
and warranties of the Company herein, as to the performance by the
Company of its obligations hereunder and as to other conditions
concurrent and precedent to the obligations of the Underwriter hereunder.
The opinions and certificates mentioned above or elsewhere
in this Agreement will be deemed to be in compliance with the provisions
hereof only if they are reasonably satisfactory to the Underwriter and to
counsel for the Underwriter.
10. EFFECTIVE DATE. This Agreement will become effective
at 9:30 a.m. on the first business day following the date on which the
Registration Statement becomes effective; provided, however, this
Agreement will become effective at such later time after the Registration
Statement becomes effective as the Underwriter may determine on and by
notice to the Company or by release of any of the Offered Securities for
sale to the public or by any other action constituting a commencement of
the public offering. For the purposes of this Section 10, the Offered
Securities will be deemed to be so released upon the release for
publication of any newspaper advertisement relating to the Offered
Securities or upon the release by the Underwriter of telegrams offering
the Offered Securities for sale to securities dealers, whichever may
occur first. The term "business day" shall mean a calendar day other
than a Saturday, Sunday or holiday. Notwithstanding anything herein to
the contrary, the provisions of this Section and of Sections 6, 7, 11 and
12 hereof will, however, be effective upon the execution of this
Agreement.
11. TERMINATION. This Agreement may be terminated by the
Underwriter by notice to the Company (i) at any time before this
Agreement becomes effective in accordance with Section 9 hereof; (ii) if,
prior to the First Closing Date, the Company shall have failed or refused
to fully comply with any of the provisions of this Agreement on its part
to be performed prior thereto, or if any of the agreements, conditions,
covenants, representations or warranties of the Company herein contained
shall not have been performed or fulfilled within the times specified;
(iii) trading in securities generally on the New York Stock Exchange or
the American Stock Exchange will have been suspended; (iv) limited or
minimum prices will have been established on either such Exchange or
maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD; (v) a banking moratorium will have
been declared either by federal or New York State authorities; (vi) any
other restrictions on transactions in securities materially affecting the
free market for securities or the payment for such securities, will be
established by either of such Exchanges, by the Commission by any other
federal or state agency, by action of the Congress or by Executive Order;
(vii) the Company will have sustained a material loss, whether or not
insured, by reason of fire, flood, accident or other calamity; (viii) any
action has been taken by the Government of the United States or any
department or agency thereof which, in the sole judgment of the
Underwriter, has had a material adverse effect upon the general market
for securities; (ix) if, prior to the First Closing Date, there shall
have occurred the outbreak of any war or any other event or calamity
which, in the sole judgment of the Underwriter, materially disrupts the
financial markets of the United States; (x) if, prior to the First
Closing Date, the general market for securities or political, legal or
financial conditions should deteriorate so materially from that in effect
on the date of this Agreement that, in the sole judgment of the
Underwriter, it becomes impracticable for the Underwriter to commence or
proceed with the public offering of the Offered Securities and with the
payment for or acceptance thereof; (xi) if trading of any securities of
the Company shall have been delisted on any exchange or in any over-the-
counter market; or (xii) if, prior to the First Closing Date, the
Underwriter determines, in its sole discretion, that any materially
adverse change shall have occurred, since the date as of which
information is given in the Registration Statement and the Prospectus, in
the financial condition, business, prospects, operations, properties or
obligations of the Company. Notwithstanding any contrary provision
contained in this Agreement, any election hereunder or any termination of
this Agreement, and whether or not this Agreement is otherwise carried
out, the provisions of Section 7, 8 and 12 shall not be in any way
affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
12. EXPENSES; BLUE SKY FILINGS AND EXPENSES.
(a) Whether or not the offering is consummated, the
Company will pay all costs and expenses incident to the performance of
the obligations of the Company hereunder, including without limiting the
generality of the foregoing, (i) the preparation, printing, filing, and
copying of the Registration Statement, Prospectus, this Agreement, the
Selected Dealer Agreement, and other underwriting documents, if any, and
any drafts, amendments or supplements thereto, including the cost of all
copies thereof supplied to the Underwriter in such quantities as
reasonably requested by the Underwriter and the costs of mailing
Prospectuses to offerees and purchasers of the Offered Securities; (ii)
the out-of-pocket travel (up to a maximum of $500) expenses of the
Underwriter and counsel to the Underwriter or other professionals
designated by the Underwriter to visit the Company's facilities for
purposes of discharging due diligence responsibilities; (iii) the
printing, engraving, issuance and delivery of certificates representing
the Offered Securities, including any transfer or other taxes payable
thereon; (iv) the registration or qualification of the Offered Securities
under state securities or "blue sky" laws, in accordance with the
provisions of Section 11(c) below; (v) all reasonable fees and expenses
of the Company's counsel and accountants; (vi) all costs, expenses and
filing fees in connection with review of the terms of the offering by the
NASD (it being agreed that all fees and expenses of the Underwriter and
Underwriter's counsel in securing NASD approval, shall be paid by the
Company); (vii) all costs and expenses of any listing of the Offered
Securities on NASDAQ or a stock exchange; (viii) all costs and expenses
of three (3) bound volumes provided to the Underwriter of all documents,
paper exhibits, correspondence and records forming the materials included
in the offering; (ix) the cost of "tombstone" advertisements to be placed
in one or more daily or weekly periodicals as the Underwriter may
request; (x) all expenses incurred in connection with presentation of two
"due diligence" meetings and (xi) all other costs and expenses incurred
or to be incurred by the Company in connection with the transactions
contemplated by this Agreement. The obligations of the Company under
this subsection (a) shall survive any termination or cancellation of this
Agreement, except as provided in paragraph (c) of this Section 12.
(b) In addition to the Company's responsibility for
payment of the foregoing expenses, the Company shall pay to the
Underwriter a non-accountable expense allowance equal to three percent
(3%) of the gross proceeds of the offering, including in such amount the
proceeds from the exercise of the Underwriter's over-allotment option.
The non-accountable expense allowance due shall be paid at the First
Closing Date and any Option Closing Date, as applicable. The Underwriter
hereby acknowledges prior receipt from the Company of $25,000, which
amount shall be applied to the non-accountable expense allowance due when
and if the offering is closed.
(c) If, (i) the Company will not or cannot
expeditiously proceed with the sale of the Registered Securities,
including without limitation as a result of the Company taking or not
taking actions, or (ii) if the Underwriter terminates this Agreement
pursuant to clauses (ii) or (xii) of Section 11, then the Company shall
reimburse the Underwriter in full for its actual out-of-pocket expenses
(including, without limitation, its legal fees and disbursements), up to
$75,000 (in each case inclusive of any portion of the non-accountable
expense allowance paid pursuant to paragraph (b) above).
(d) If the Company decides not to proceed with the
offering for any reason, and subsequently engages in any public offering,
private placement, merger, acquisition, joint venture or corporate
reorganization with any entity within 12 months after the Company
notifies the Underwriter of its decision not to proceed, the Underwriter
shall be entitled to receive from the Company a cash fee equal to 5% of
the consideration paid or received by the Company in connection with such
transaction, less any payments previously made to the Underwriter
pursuant to paragraph (b). The Company and the Underwriter shall
negotiate in good faith the terms of an investment banking finders' fee,
if any, if the Underwriter is instrumental in arranging such transaction.
(e) The Underwriter shall determine in which states
or jurisdictions the Offered Securities shall be registered or qualified
for sale. Immediately prior to the Effective Date, counsel for the
Underwriter shall advise counsel for the Company in writing of all states
in which the offering has been registered or qualified for sale or has
been cancelled, withdrawn or denied and the number of Offered Securities
registered or qualified for sale in each such state. The Company shall
be responsible for the cost of state registration or qualification,
including the filing fees (which filing fees are payable to Underwriter's
counsel in advance of such filings) and the legal fees and disbursements
of Underwriter's counsel in connection with obtaining such registration
or qualification; provided, however, that the legal fees of Underwriter's
counsel payable by the Company with respect to blue sky filings shall be
$35,000. The disbursements of Underwriter's counsel shall be paid by the
Company monthly as incurred by such legal counsel. The Underwriter
hereby acknowledge that the Company has previously paid $10,000 to
Underwriter's counsel to be applied towards the legal fees payable
pursuant to this paragraph (e) and the Company hereby acknowledges that
any remaining balance with respect to legal fees or blue sky filing fees
is due and payable on the First Closing Date.
13. NOTICES. Any notice hereunder shall be in writing,
unless otherwise expressly provided herein, and if to the respective
persons indicated, will be sufficient if mailed by certified mail, return
receipt requested, postage prepaid, or hand delivered, and confirmed in
writing or by telegraph, addressed as respectively indicated or to such
other address as will be indicated by a written notice similarly given,
to the following persons:
(a) If to the Underwriter -- addressed to Duke & Co.,
Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇
▇▇▇▇▇▇, President, with a copy to Zimet, Haines, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
Esq.
(b) If to the Company -- addressed to IFS
International, Inc., Rennselaer Technology Park, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Chairman, with a copy to
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Notice shall be deemed delivered upon receipt.
14. SUCCESSORS. This Agreement will inure to the benefit
of and be binding upon the Underwriter and the Company and their
respective successors and assigns. Nothing expressed or mentioned in
this Agreement is intended, or will be construed, to give any person,
corporation or other entity other than the persons, corporations and
other entities mentioned in the preceding sentence any legal or equitable
right, remedy, or claim under or in respect to this Agreement or any
provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and
exclusive benefit of such persons and for the benefit of no other
persons; except that the representations, warranties and indemnities of
the Company contained in this Agreement will also be for the benefit of
the directors and officers of the Underwriter and any person or persons
who control any of the Underwriter within the meaning of Section 15 of
the Act, and except that the indemnities of the Underwriter will also be
for the benefit of the directors and officers of the Company and any
person or persons who control the Company within the meaning of Section
15 of the Act. No purchaser of any of the Offered Securities from the
Underwriter will be deemed a successor or assign solely because of such
purchase.
15. FINDERS AND HOLDERS OF FIRST REFUSAL RIGHTS.
(a) The Company hereby represents and warrants to the
Underwriter that no person is entitled, directly or indirectly, to
compensation for services as a finder in connection with the proposed
transactions or holds a right of first refusal or similar right in
connection with the proposed offering, and the Company hereby agrees to
indemnify and hold harmless the Underwriter, its officers, directors,
agents and each person, if any, who controls such Underwriter within the
meaning of Section 15 of the Act, from and against any loss, liability,
claim, damage or expense whatsoever arising out of a claim by an alleged
finder or alleged holder of a right of first refusal or similar right in
connection with the proposed offering, insofar as such loss, liability,
claim, damage or expense arises out of any action or alleged action of
the Company.
(b) The Underwriter hereby represents and warrants to
the Company that no person is entitled, directly or indirectly, to
compensation for services as a finder in connection with the proposed
transactions; and the Underwriter hereby agrees to indemnify and hold
harmless the Company, its officers, directors and agents, from and
against any loss, liability, claim, damage or expense whatsoever arising
out of a claim by an alleged finder in connection with the proposed
offering, insofar as such loss, liability, claim, damage or expense
arises out of any action or alleged action of the Underwriter.
16. APPLICABLE LAW. This Agreement shall be deemed to be
a contract made under the laws of the State of New York and for all
purposes shall be construed in accordance with the laws of said state
applicable to contracts made and to be performed entirely within such
State. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted
exclusively in New York State Supreme Court, County of New York, or in
the United States District Court for the Southern District of New York,
(2) waives any objection which the Company may have now or hereafter to
the venue of any such suit, action or proceeding, and (3) irrevocably
consents to the jurisdiction of the New York State Supreme Court, County
of New York and the United States District Court for the Southern
District of New York in any such suit, action or procedure. Each of the
Company and the Underwriter further agrees to accept and acknowledge
service of any and all process which may be served in any suit, action or
proceeding in the New York State Supreme Court, County of New York and
the United States District Court for the Southern District of New York,
and agrees that service of process upon the Company mailed by certified
mail to the Company's address shall be deemed in every respect effective
service of process upon the Company in any such suit, action or
proceeding. In the event of litigation between the parties arising
hereunder, the prevailing party shall be entitled to costs and reasonable
attorney's fees.
17. HEADINGS. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect any of
the terms or provisions hereof.
18. COUNTERPARTS. This Agreement may be executed in any
number of counterparts which, taken together, shall constitute one and
the same instrument.
19. ENTIRE AGREEMENT. This Agreement sets forth the
entire agreement and understanding between the Underwriter and the
Company with respect to the subject matter hereof, and supersedes all
prior agreements, arrangements and understandings, written or oral,
between them.
20. REPRESENTATION OF THE UNDERWRITER. The Underwriter
hereby represents that it is registered as a broker-dealer with the
Commission and is registered as a broker-dealer in all states in which it
of conducts business and it is a member in good standing of the NASD.
21. TERMINOLOGY. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter gender,
shall include all other genders and the singular shall include the
plural, and vice versa.
If the foregoing correctly sets forth our understanding,
please indicate the Underwriter's acceptance thereof, as of the day and
year first above written, in the space provided below for that purpose,
whereupon this letter with the Underwriter's acceptance shall constitute
a binding agreement between us.
Very truly yours,
IFS INTERNATIONAL, INC.
By
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chairman of the Board
Confirmed and accepted on the
day and year first above written.
DUKE & CO., INC.
By:
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
IFS INTERNATIONAL, INC.
SELECTED DEALER AGREEMENT
February 21, 1997
Dear Sirs:
A Registration Statement on Form SB-2 (the "Registration
Statement"), filed by IFS International, Inc. (the "Company") relating to
1,200,000 shares ("Firm Shares") of Preferred Stock, par value $.001 per share
(the "Preferred Stock"), and 1,700,000 redeemable Preferred Stock purchase
warrants (the "Firm Redeemable Warrants" and, collectively with the Firm
Shares, the "Firm Securities") plus up to 180,000 additional shares of
Preferred Stock and 255,000 Redeemable Warrants (collectively the "Option
Securities") which are subject to an option for the purpose of covering
over-allotments has become effective. The Firm Securities and the Option
Securities are hereinafter collectively referred to as the "Offered
Securities". The Offered Securities are being sold for the account of the
Company and are described in the enclosed final prospectus (the "Prospectus").
Some of the Offered Securities are being offered, when, as and if
accepted by us and subject to withdrawal, cancellation or modification of the
offer without notice and to the other terms and conditions hereof, to certain
dealers, at the initial public offering price, less a selling concession of
$.25 per Share and $.005 per Redeemable Warrant. Such dealers may reallow out
of such selling concession not more than $.125 per Share and $.0025 per
Redeemable Warrant to members of the National Association of Securities
Dealers, Inc. ("NASD"), and to foreign dealers not eligible for membership in
the NASD who agree not to offer or sell the Offered Securities in the United
States and agree that in making such sales of the Offered Securities outside
the United States they will comply with the requirements of Rule 2110 of the
NASD Rules of Conduct and the Interpretation with respect to free-riding and
withholding thereunder.
Subscriptions will now be received by us at the office of Duke &
Co., Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, subject to allotment
in our uncontrolled discretion. We reserve the right to close the
subscription books at any time without notice and to reject any subscriptions,
in whole or in part.
Offered Securities purchased by you are to be bona fide reoffered by
you in conformity with this Agreement and the terms of offering set forth in
the Prospectus. You agree that you will not bid for, purchase, attempt to
induce others to purchase, or sell, directly or indirectly, any Offered
Securities of the Company except as contemplated by this Agreement and except
as a broker pursuant to unsolicited orders. You confirm that you have at all
times complied with the provisions of Rule 10b-6 of the Securities and
Exchange Commission applicable to this offering. In the event that within the
period ending 60 days from the date hereof we purchase or contract to
purchase, in the open market or otherwise, any of the Offered Securities
delivered to you hereunder, we reserve the right to charge you, and you agree
to repay us on demand, the amount of the dealer's selling concession allowed
to you on such Offered Securities.
You agree that you will at any time, upon request, inform us of the
number of Offered Securities allotted to you hereunder which then remain
unsold.
Payment for the Offered Securities purchased by you is to be made at
the net dealer price of $4.75 per Share and $.095 per Redeemable Warrant, at
the office of Duke & Co., Inc. ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, at
such time and on such date as we may designate, by certified or official bank
check, payable in New York Clearing House funds to the order of Duke & Co.,
Inc. against delivery of certificates for the securities comprising the
Offered Securities so purchased. If such payment is not made at such time and
on such date, you agree to pay Duke & Co., Inc. interest on such funds at the
prevailing broker's loan rate.
We have been informed that a Registration Statement in respect of
the Offered Securities has become effective under the Securities Act of 1933.
You are not authorized to give any information or to make any representations
other than those contained in the Prospectus or to act as agent for the
Company or for the undersigned when offering Offered Securities to the public
or otherwise.
We do not assume any responsibility or obligations as to your right
to sell Offered Securities in any jurisdiction, notwithstanding any
information we may furnish in that connection. You confirm that you are
familiar with Securities Act Release No. 4968 and Rule 15c2-8 under the
Securities Exchange Act of 1934, relating to the distribution of preliminary
and final prospectuses, and confirm that you have complied and will comply
therewith. We will make available to you, to the extent they are made
available to us by the Company, such number of copies of the Prospectus as you
may reasonably request for the purposes contemplated by the Securities Act of
1933, the Securities and Exchange Act of 1934, and the applicable rules and
regulations thereunder.
The provisions of this Agreement will terminate at the close of
business 90 days after the Offered Securities are released by us for sale to
the public.
Nothing herein will constitute you, and the other dealers to whom
any of the Offered Securities may be sold in accordance with the terms of the
Agreement, an association, unincorporated business or other separate entity or
partners with each other or with us; but you agree to pay your proportionate
share of any liability or expense based on any claim to the contrary. We will
not be under any liability to you except for obligations expressly assumed in
this Agreement and for liabilities under the Securities Act of 1933.
Please confirm your agreement to purchase on the foregoing terms and
conditions the Shares and Redeemable Warrants allotted to you against your
subscription by signing and returning the attached confirmation, even though
you may already have informed us of your acceptance by telephone or telegraph.
Very truly yours,
DUKE & CO., INC.
By:
Name:
Title:
Duke & Co., Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Gentlemen:
The undersigned confirms its agreement to purchase
Shares and Redeemable Warrants referred to in the
foregoing Selected Dealer Agreement, subject to the terms and conditions of
such Agreement, and further agrees that any agreement by it to purchase
additional Shares and Redeemable Warrants during the life of such Agreement
will be subject to the same terms and conditions. The undersigned
acknowledges receipt of the offering Prospectus relating to such Shares and
Redeemable Warrants, and confirms that in agreeing to purchase such Shares and
Redeemable Warrants it has relied on such Prospectus and not on any other
statement whatsoever, written or oral.
The undersigned hereby confirms that it is actually engaged in the
investment banking or securities business and is either (i) a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD")
or (ii) a dealer with its principal place of business located outside the
United States, its territories and its possessions and not registered under
the Securities Exchange Act of 1934 who hereby agrees to make no sales within
the United States, its territories or its possessions or to persons who are
nationals thereof or residents therein. The undersigned hereby agrees to
comply with Rule 2110 of the NASD Rules of Conduct and the NASD's
Interpretation with respect to free-riding and withholding thereunder, and if
it is a foreign dealer and not a member of the NASD to comply as though it
were a member of the NASD with such Rule and Interpretation.
By:
Name:
Title:
Address:
Dated: February , 1997